Why Hindustan Petroleum Was Upgraded To 'Overweight' By Morgan Stanley
The brokerage said the company's transformation is back on track and is expected to be fully integrated in 2026.
Hindustan Petroleum Corp. was upgraded two notches to 'overweight' from 'underweight' by Morgan Stanley given that its transformation is back on track amid multiple drivers for the "overlooked fuel retailer".
Morgan Stanley raised HPCL's target price by 46% to Rs 364, implying an upside of 22% from Wednesday's closing price of Rs 298.65.
The brokerage also raised the company's FY25–26 earnings estimate by 16–27% to reflect the lower net debt, execution of refinery upgrades, and rising global non-OPEC crude supply.
Transformation Back On Track
Hindustan Petroleum's transformation, which was delayed due to geopolitical issues in 2022, is now back on track, the brokerage said in a Nov. 8 note. The oil marketer will have full integration by 2026. The company is becoming more integrated into fuel production and marketing and will see its dependence on external oil product purchases fall by nearly half by the end of FY25 and to almost zero in 2026, it said.
The brokerage expects Hindustan Petroleum's relative underperformance of earnings and multiples to BPCL and IOCL to reverse as integration increased. Full integration has helped other major oil marketing companies navigate volatile energy markets better, according to Morgan Stanley.
ALSO READ
Government To Get Significant Stake In Hindustan Petroleum Corporation Post Preference Issue
Refinery Margins
The company will see its refining capacity expand by 55% and its jet plus diesel fuel product mix increase by 10 percentage points to 55% by FY25, the note said.
Once the company's Rajasthan refinery is complete in 2026, HPCL will have two of the more sophisticated refineries in all of Asia after being behind the curve for the past 20 years, the brokerage said.
It expects refinery margins to rise to 40% above historical cycle averages.
Debt Position
Peak investment and a large part of debt increases are now in the past, Morgan Stanley said. The brokerage estimates only a 20% increase from the current levels in 2025, after a 132% net debt hike in the past three years.
Shares of Hindustan Petroleum have been gaining for the past nine consecutive sessions and moved 19% higher in the past five sessions.
The shares were trading 0.30% higher at Rs 300.40 a piece, compared to the 0.14% fall in the Nifty 50 as of 10:42 a.m. on Thursday.
Of the 32 analysts tracking the company, 20 maintain a 'buy' rating, eight recommend a 'hold' and four suggest a 'sell', according to Bloomberg data. The average 12-month price target given by analysts implies an upside of 5.6%.
