HPCL Rajasthan Refinery - A White Elephant Or Prized Asset? Motilal Oswal

Motilal Oswal Report

HPCL's Rajasthan Refinery Ltd. is set to start operations in FY26 and will add ~30% to HPCL’s refining capacity. At peak capacity utilization (likely in FY28), HRRL will contribute ~37% to HPCL’s FY26E Ebitda. HPCL will account for HRRL on a joint venture basis (74% stake).

HRRL’s start coincides with what we view as the golden age of refining, as global net refining capacity additions in 2024-30 are estimated to be only 3.3 million barrels per day, implying an average annual net capacity addition of 470000 b/d, down 40% compared to the 780000 b/d average observed during 2010-19.

HPCL’s marketing-to-refining ratio is set to improve from 2.1 times now to ~1.6 times after the completion of its bottom upgradation unit (October 2024) and HRRL startup, and further to 1times if the merger with MRPL materializes. This will lower earnings volatility/under-recovery related uncertainty and drive structural improvement in the business.

Lastly, with Castrol trading at 15.5 times FY26E enterprise value/Ebitda, the demerger of HPCL’s lubricant business and listing can unlock up to Rs 33/share in value.

We reiterate 'Buy' on HPCL with SoTP-based target price of Rs 460/share.

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