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Stock recommendation: HPCL — Reduce — Target price Rs 285
Publish date: August 9, 2018
Results update: Weak underlying results
Government-owned Hindustan Petroleum Corporation Ltd (HPCL) saw its normalized EBITDA — a measure of a company’s future earning capabilities — shrink below the market estimate. Drop in the refining margin and marketing margin are two reasons for the energy company’s current weakness.
Key highlights
- HPCL’s normalized EBITDA dipped by 36% (QoQ) to Rs 18.2 billion.
- Refining margins stood at $3.7 per barrel, meaning its total contribution declined to Rs 8.1 billion from Rs 14.3 billion in the previous quarter.
- Marketing margin showed a 14% dip from the previous quarter.
- The domestic business grew by 4.7%, but exports showed a marginal gain.
Valuation & outlook
The company’s earnings turmoil can be attributed to weak margins in refining and marketing. The uncertainty surrounding the subsidy mechanism in India is proving to be an additional drag.
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