Buy HPCL – Anand Rathi Financial Services
HPCL
Reco Price: Rs 361
Target price: Rs 470
Upside: 21.25%
Brokerage: Anand Rathi Financial Services
Recent statements from the government (specifically, the Ministry of Petroleum and Natural Gas) have been positive, indicating the possibility where OMCs might not have to bear any subsidy. Also, brokerages expect lower crude/product prices in months ahead and subsequent lower debt load.
With the steep fall in crude prices and lower product prices, the working capital requirements and debt load of HPCL have fallen sharply compared to FY09. These along with lower interest cost should help the company to report improved profitability. This is also a reason that the brokerage forecast a 92 per cent y-o-y jump in FY10E EPS over FY09 to Rs 42.6, on the back of lower under-recoveries (partially on cooking fuels), lower interest costs and inventory gains. The brokerage recommended the stock at Rs 361 and raised its target price to Rs 470, which is based on 50 per cent historical discount to Sensex PE of 17 times and value of its investments in MRPL, at a 25 per cent of holding company discount.
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