Motilal Oswal has downgraded shares of Hindustan Petroleum Corporation Limited (HPCL) to 'Neutral' with a target price of ₹335. The move follows a review of the company's valuation, despite a strong standalone EBITDA of ₹93.7 billion reported for the recent period. While marketing losses were lower than expected, analysts cited concerns over tempered growth and moderate returns on equity in the coming years. Investors should watch for updates on margins and long-term project execution.
Brokerage firm Motilal Oswal has shifted its stance on Hindustan Petroleum Corporation Limited (HPCL) to 'Neutral,' assigning a target price of ₹335 per share. This rating change reflects a more cautious outlook on the company's valuation and long-term growth potential, despite the firm recording a better-than-expected financial performance in the most recent quarter.
In its latest report, the company announced a standalone EBITDA of ₹93.7 billion, which was significantly higher than the ₹17 billion estimate projected by the brokerage. This positive performance was primarily driven by lower-than-anticipated marketing losses. Additionally, the company saw an improvement in LPG under-recovery costs, which fell to ₹36.2 billion from the ₹56 billion reported in the previous quarter, indicating some relief in subsidy-related pressures.
However, the report also highlighted challenges in the refining segment. The company's Gross Refining Margin, a key metric for oil marketing companies that tracks the profit earned from processing crude oil into fuel, stood at USD 32.2 per barrel. This figure missed the estimated benchmark by approximately 8 percent. Furthermore, the blended gross marketing margin—which includes inventory—remained near negative ₹0.1 per liter, although this was still an improvement compared to the negative ₹7.2 per liter estimate.
Looking ahead, analysts at Motilal Oswal expect a return on equity of 20.4 percent by the financial year 2028 and a projected dividend yield of 5.6 percent. While these numbers suggest stability, the brokerage opted for a Neutral rating, noting that its valuation model does not yet account for potential gains from major upcoming projects, including the commissioning of the bottom-upgradation unit and the broader Project Samriddhi. As these projects are long-term in nature, their immediate impact on the stock's appreciation remains to be seen.
For investors, the key monitorables will be the company’s ability to maintain marketing margins in a volatile global oil environment and the pace of execution for its ongoing expansion projects. Because oil marketing companies are highly sensitive to global crude oil prices, government regulations on fuel pricing, and refining profitability, any sudden fluctuation in these areas can impact future earnings. Shareholders should track management commentary regarding project timelines and any further updates on refining margin trends.