A 115 per cent expansion in refining over the next four years, within which 55 per cent will be done by FY22 related to brownfield expansions at the Mumbai and Vizag refineries. The broker expects an improvement in product mix at the expanded 15 mtpa Vizag refiner. In addition, it expects benchmark refining margins going from awful to less bad as global demand gradually improves. Lastly there is a possible upside from higher-than-modelled marketing margins related to BSVI and higher exports of lubricants, Macquarie said.
“The prize remains fuel retail. HPCL operates 16,000 stations pan-India. In terms of SOTP contribution, marketing accounts for 60 per cent of our fair value. HPCL’s longer-term capex allocation towards gas (20 city-gas concessions, LNG/Charra terminal), ethanol, renewables is important from an energy transition standpoint albeit with little earnings impact over the next three years,” it said.
HPCL’s base-case valuation range for HPCL is Rs 400-550 per share based on SOTP, peer multiples, own multiples, transaction comps, residual income. The Rs550 per barrel outcome is simply the ONGC-HPCL transaction of 2018 adjusted for growth in book value.
“Our base case SOTP assumes 6 times EV-Ebita for refining, 8 times for marketing and no control premium,” it said.