IIFL Institutional Equities, an arm of IIFL - India Infoline Group, one of the leading players in the Indian financial services space, today initiated coverage on HPCL with a 12-month target price (TP) of Rs 540.
“Improvement in earnings owing to lower subsidy burden and likely expansion in marketing margins make a strong case for a re-rating of OMCs’ valuations.” said Bhaskar Chakraborty, IIFL’s Oil & gas analyst, in a note released today.
With the government intent on deregulating diesel price in FY11, IIFL has incorporated zero subsidy on auto fuels in FY12. IIFL’s estimate of HPCL’s FY12 EPS is Rs45.2. Also, HPCL’s earnings are more sensitive to diesel price deregulation compared to BPCL’s. In addition, IIFL believes PSU OMCs will dominate the petrol retailing space in major cities post deregulation, and hence they have built in an expansion in marketing margins over FY12-13. In addition, HMEL’s (HPCL-Mittal Energy Ltd) 9mtpa greenfield refinery in Bhatinda with high Nelson Complexity will add 23% (Rs8.6bn) to HPCL’s consolidated EBITDA in FY13. According to the analyst, the expected decline in under-recovery burden for OMCs along with the likely improvement in auto-fuel marketing margins creates a strong case for re-rating of the stock. HPCL’s core refining and marketing business is valued at 8x FY12ii EPS by IIFL. Adding on the book value of HMEL and value of its investments, results in a target price of Rs540/share.
This report is published by IIFL’s Institutional Equities Research desk.
About IIFL - India Infoline Ltd (Bloomberg: IIFL)
The IIFL group, comprising the holding company, India Infoline Ltd (NSE: INDIAINFO, BSE: 532636) and its subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers advice and execution platform for the entire range of financial services covering products ranging from Equities and derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed deposits, Loans, Investment Banking, GoI bonds and other small savings instruments. It owns and manages the website, www.indiainfoline.com, which is one of India’s leading online destinations for personal finance, stock markets, economy and business. IIFL has also been one of the first Indian broking houses to get memberships in the Singapore and Colombo stock exchanges.
IIFL in this year has been assigned the highest broker grading BQ1 by CRISIL, while our Singapore subsidiary has received in-principle approval for Securities Trading and Clearing memberships from SG. Recently, it also became the first foreign broking firm to be granted membership of Sri Lanka’s Colombo Stock Exchange. The company has set up an office in Sri Lanka as the first step towards full coverage of this small but highly promising market. To this end, it recently hosted several foreign and Indian institutional investors and some leading Sri Lankan corporations at its conference, Discover Sri Lanka – 2010, at Colombo.
IIFL has been awarded the ‘Best Broker, India’ by FinanceAsia and the ‘Most improved brokerage, India’ in the AsiaMoney polls. IIFL was also adjudged as ‘‘Fastest Growing Equity Broking House - Large firms’ by Dun & Bradstreet. Our chairman, Mr Nirmal Jain, was ranked 2nd in a study of ‘India’s most valuable CEOs’ by BusinessWorld in November 2009. A forerunner in the field of equity research, IIFL’s research is acknowledged by none other than Forbes as ‘Best of the Web’ and ‘…a must read for investors in Asia’. IIFL’s research is available not just over the Internet but also on international wire services like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of the most read Indian brokers.
A network of over 2,500 business locations spread over more than 450 cities and towns across India facilitates the smooth acquisition and servicing of a large customer base. All our offices are connected with the corporate office in Mumbai with cutting edge networking technology. The group caters to a customer base of about a million customers, over a variety of mediums viz. online, over the phone and at our branches.
Please note: IIFL refers to India Infoline Ltd and its group companies.