HPCL - Strong Q4, Weaker Q1 Ahead, But Long-Term Prospects Remain Undiminished: ICICI Securities

ICICI Securities Report

At current price, valuations of 4.2 times FY26E price-to-earning and 5.3 times FY26E enterprise value/Ebitda provide enough leeway for further outperformance over the next 12-18 months, in our view.

We believe that valuations are still at attractive levels and do not fully reflect the structural changes in scale and earnings profile of the company over the next three years. Our valuation for the company, at ~5.3 times FY26E EV/Ebitda for the refining and marketing business, with listed investments valued at current market price delivers a revised target price of Rs 625 (earlier Rs 555), a material ~25% upside from current market price. Reiterate Buy.

Key upside risks:

1. Faster-than-expected revival in benchmark gross refining margins.

2. Recovery in petrochemical price realisations.

3. Stronger retail fuel margins.

4. Valuation of the associated businesses (city gas distributions, renewables etc.) coming into street’s estimates.

Key downside risks:

1. Execution delays and longer stabilisation time of the expanded capacity.

2. Prolonged downturn in both refining and petchem cycles.

3. Sustained period of uneconomic fuel price cuts beyond what we expect as of now.

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