Edelweiss maintains a 'Buy' on Hindustan Petroleum Corporation (HPCL).HPCL's Q1FY07 numbers were lower than estimates due to non-receipt of government bonds by the company.Despite HPCL reporting highest ever refining margins, under-recoveries in the marketing segment and non-receipt of the GoI bonds led to losses in the quarter.Edelweiss believes that the financials of HPCL should be looked at after assuming the receipt of the GOI bonds as they expect the bonds to be issued in Q2FY07.HPCL would have shown profits of Rs 3.0 bn in that case. They maintain FY07E and FY08E EPS estimates at Rs 25.5 and Rs 39.4 respectively.At Rs 221, HPCL trades at 8.7x and 5.6x FY07E and FY08E EPS, respectively. They are positive on the long term fundamentals of the industry, though in the short term the stock price may be influenced by the movement in the crude prices and the uncertainties in the sector because of the under-recoveries.Hence, they suggest investors to hold the stock for a longer term period. They believe that the valuation of the stock is very cheap and is trading at 1.1x FY08 normalised EV/EBITDA. Hence they maintain 'Buy' recommendation on the stock.
