On Monday, UBS reiterated its Buy rating on Hindustan Petroleum (HCPL:IN) with a steady price target of INR445.00. The firm highlighted that Hindustan Petroleum's second-quarter financial performance was affected by considerable LPG under-recoveries and inventory losses, despite robust integrated margins from refining and marketing operations.
Hindustan Petroleum reported an EBITDA of Rs27 billion in the second quarter of fiscal year 2025, falling short of UBS's projection of Rs33 billion and the consensus estimate of Rs42 billion. The company's earnings were notably impacted by Rs21 billion in LPG under-recoveries and Rs14 billion in inventory losses.
The company posted gross refining margins (GRMs) of $3.1 per barrel after accounting for a refining inventory loss of $1.7 per barrel. This figure was slightly below the benchmark Singapore GRM of $3.6 per barrel.
Despite an improvement in distillate yield from 73% in the first quarter to 77% in the second quarter, Hindustan Petroleum still trails its peers, with Bharat Petroleum (BPCL) and Indian Oil (IOCL) reporting higher yields of approximately 84% and 79%, respectively.
Moreover, the company experienced an expansion in marketing margins for diesel and gasoline, as retail fuel prices remained unchanged during the period. This expansion provided a positive aspect to Hindustan Petroleum's overall integrated margin performance.
InvestingPro Insights
While Hindustan Petroleum (HPCL) faced challenges in Q2 FY2025, InvestingPro data reveals some interesting aspects of the company's financial position. As of the last twelve months ending Q2 2025, HPCL reported revenue of $52.27 billion, with a modest growth of 3.25%. This aligns with the company's status as a prominent player in the Oil, Gas & Consumable Fuels industry, as noted in an InvestingPro Tip.
However, the company's gross profit margin stands at 6.75%, which supports another InvestingPro Tip highlighting HPCL's weak gross profit margins. This could be a contributing factor to the underperformance in EBITDA mentioned in the UBS report.
Despite these challenges, HPCL's stock has shown remarkable resilience. An InvestingPro Tip points out that the stock has delivered a high return over the last year, which is corroborated by the impressive 136.07% one-year price total return as of the latest data. This strong performance suggests that investors may be optimistic about the company's long-term prospects, even in the face of short-term headwinds like LPG under-recoveries and inventory losses.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips on HPCL, providing deeper insights into the company's financial health and market position.
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