Maharatna CPSE Stock Recommended As Buy For Target Price Of Rs 500, Huge 46% Potential Rise Ahead

Maharatna CPSE company, Hindustan Petroleum Corporation Limited (HPCL) has an attractive valuation and brokerage ICICI Securities recommended buying this oil stock for a target price of Rs 550. Bullish optimism in HPCL comes on the back of strong marketing margins and sustained lead. It needs to be noted that HPCL shares have already rallied over 50% in the past three months.

On BSE, HPCL shares ended at Rs 377.45 apiece, down by 1.5% with an m-cap of Rs 53,543.11 crore. The stock's weekly gains are over 4.2%. While year-to-date, the stock has zoomed by 59.13% on the exchange.

HPCL is also among the high dividend paying oil marketing companies. However, in 2023, HPCL has not paid any dividends. Last year, the company paid dividends up to Rs 14 per share. Since July 2000, HPCL has delivered up to 33 dividends as of now.

According to ICICI Securities note, over the last three months, HPCL's stock price has soared ~50%. The upwards March is quite likely fuelled by: 1) the sustained USD 3-4/bbl premium build-up over benchmark Singapore GRMs; 2) rapidly improving retail fuel margins and reducing leverage vs FY23 levels, and 3) receding concerns that adverse state election results may drive a sharp cut in retail fuel prices.

Looking beyond near-term strength, the brokerage highlighted that some of the factors underpinning stronger earnings growth are sustainable beyond just the near term and it further believes operating macros globally are also likely to continue working in favour of HPCL.

The brokerage's note said, "We see the following factors enabling sustained earnings improvement over FY24-26E: 1) Strong margins; 2) targeted investments in improving scale and complexity of the downstream business; 3) diversification that is aligned to margin improvement; and 4) improving leverage."

Furthermore, it added, "The completion of the Vizag expansion and the imminent commissioning of the Rajasthan refinery shall add to some much-needed petrochemical output to the traditional refined product yield for HPCL. The difference between refining's gross margin yield and petchem yields is stark; ~0.1-0.2mt of polypropylene yield from Vizag and the 2.4mt petrochemical yield from the Rajasthan refinery should help fetch gross margins of USD 931mn, as against the USD 187mn if volumes were traditional refinery products (assuming a normalised GRM of USD 9-10/bbl)."

On the valuation, the brokerage's note said, "We raise FY25/26E EPS by 6.8/6.9%, which drives our TP higher to INR 550 (from INR 365), ~44% upside. Reiterate BUY." This indicates a nearly 46% upside in HPCL from the current market price.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.