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Hindustan Petroleum Corporation Ltd

| Q2 FY26 Earning Conference Call

NEUTRAL SENTIMENT

Report Source

⬤31st Oct 25

Summary : HPCL delivered strong H1 results, reduced debt, and is progressing major projects, while actively pursuing cost efficiencies and new growth avenues.

Management Perspective positive : “very solid performance”, “great and solid trajectory”, “very confident of the consistency of our results”, “we are comfortable at being able to mitigate the financial impact”

Concall Report Analysis & Insights

Business Overview

  1. H1 FY26 PAT increased 731% YoY to INR8,201 crores, surpassing last year's full PAT.
  2. Achieved consistent quarterly profits above INR3,000 crores for the last four quarters.
  3. Q2 GRM was $8.8 per barrel, or $8 per barrel excluding inventory losses.
  4. Refinery throughput increased 14% to 6.57 MMT in Q2 FY26 compared to Q1 FY25.
  5. Debt-to-equity ratio reduced from 1.38% to 1.07% in H1 FY26, with market cap exceeding INR1 trillion.

Future Growth Prospects

  1. Vizag RUF pre-commissioning is complete, with start-up expected in 3-4 weeks for full returns.
  2. Barmer petchem project is 89% complete, with crude-in anticipated in the next few months.
  3. Targeting a sub-1 debt-to-equity ratio by year-end, supported by INR7,920 crores LPG under-recovery recovery.
  4. Samriddhi cost reduction program exceeded targets, with Samriddhi 2.0 planned for further efficiencies.
  5. Expanding non-fuel retail, gas portfolio, and niche grades, alongside a new digital roadmap.

Management Insights

  1. Management is confident in consistent performance and achieving the INR40,000 crores EBITDA target.
  2. Focus is on building the consumer side of the Lubes business for long-term shareholder value, not immediate unlocking.
  3. Crude sourcing is an economic decision; Russian crude constitutes only 5% of the basket and is not a concern.
  4. Future capex will be conservative, in the INR12,000-14,000 crores range, prioritizing debt control.
  5. The chlorine contamination impact was proactively managed and contained within anticipated limits.

Signs of Skepticism

  1. Retail network efficiency improvements are lower than initial targets.
  2. Green energy CBG plants are not yet generating positive cash flow.
  3. Non-fuel retail numbers are currently insignificant, with no clear guidance on future quantum.
  4. Management is cautious about AI projects, citing high global failure rates.

Risk Factors

  1. Chlorine contamination incident caused an estimated INR150 crores loss from discounted naphtha export.
  2. Revenue postponement occurred due to a temporary unit shutdown and held-back intermediates.
  3. Disposal of leftover contaminated crude is ongoing, with potential for further impact.
  4. Project commissioning dates, like Barmer's crude-in, could shift by a few weeks due to testing complexities.

Good To Know

  1. HPCL's Board of Directors announced a 50% interim dividend for shareholders.
  2. The company's LPG business serves 9.7 crore consumers across India.
  3. HPCL caters to 1.75 crore retail customers daily at its fuel pumps.
  4. Management is developing a complete digital roadmap, including AI, to enhance consumer-facing operations.

Key Drivers

  1. Vizag RUF commissioning soon.
  2. Barmer petchem project online.
  3. LPG under-recovery recovery.
  4. Cost reduction program success.

Key Analyst Discussions

Competitive Environment

  1. OMCs' collective efforts have reshaped the LPG market, leading to lower costs.
  2. Russian crude comprises only 5% of the crude basket, with alternative sources readily available.

Market Trends & Consumer Behavior

  1. Fuel prices are forecasted to remain reasonably steady, with minor fluctuations absorbable.
  2. LPG prices are hoped to remain benign, avoiding previous December spikes.
  3. Crude prices are expected to be range-bound in the mid-$60s.

Financial Highlights

  1. Q2 refining inventory gain was INR338 crores, marketing gain INR569 crores.
  2. FY27/28 capex guidance is INR12,000-14,000 crores annually.
  3. HRRL debt is INR40,000 crores, HMEL debt is INR35,000-36,000 crores.
  4. Barmer project is expected to contribute INR5,000-5,500 crores EBITDA (HPCL's 74% share).
  5. Refining operating expenses are approximately $2.5 per barrel.

Product Composition

  1. HPCL refinery product slate is typically 50% diesel, 20-25% MS, balance LPG/specialties.
  2. Rajasthan refinery's initial product yield is 27-28% petrochemicals.

Strategic Considerations

  1. Lubes business focus is on consumer-facing growth, not immediate demerger.
  2. Exploring InvITs for utility assets is a future possibility for value unlocking.
  3. Green energy roadmap includes 2 CBG plants and a 1.8 GW portfolio target.
  4. A new digital roadmap is being developed with an international consultant.
  5. Non-fuel retail strategies are in progress, with more visibility expected in 6 months.