HPCL Remains Motilal Oswal's Preferred Pick Among OMCs, Here's Why

Motilal Oswal Report

HPCL/BPCL/IOCL are currently trading at FY26 price-to-book of 1.6/1.5/1 versus the historical average of 1.8/1.9/1.4, respectively.

HPCL: We model a marketing margin of Rs 3.3/lit for both motor spirit and high speed diesel in FY26E-27E, while the Q3 FY25’TD MS/HSD marketing margins are Rs 13.6/lit and Rs R10.7/litre, respectively. HPCL is our preferred pick among the three oil marketing companies.

We see the following as key catalysts for HPCL:

1. demerger and potential listing of the lubricant business,

2. the commissioning of its bottom upgrade unit in Q4 FY25, and

3. the start of its Rajasthan refinery in Q1 FY26’end.

HPCL currently trades at 1.6x FY26E P/B, which we believe offers a reasonable margin of safety, as we estimate an FY26E RoE of 15.3%. Our SoTP-based target price includes:

• The standalone refining and marketing business at seven times Dec’26 EV/Ebitda;

• Rs 38/share as the potential value unlocking from the de-merger of the lubricant business;

• HPCL-Mittal Energy Ltd. at 12x P/E based on its FY24 PAT (HPCL’s share), deriving a value of Rs 52/share;

• Chhara Terminal at 1x P/B and HPCL’s Rajasthan Refinery Ltd. stake at 0.5x of HPCL’s equity investment in the project to date. The Mangalore Refinery and Petrochemical Ltd. stake is valued at our target price.

All these lead to a target price of Rs 470. Reiterate Buy.

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