Shares of Hindustan Petroleum (HPCL) were in focus after Jefferies reiterated its ‘Underperform' rating, citing weaker-than-expected refining performance and stretched valuations. The brokerage maintained its target price at Rs 385, implying a downside of about 12% from current levels.
Jefferies noted that HPCL's Q3 FY26 EBITDA came in at Rs 7,020 crore, up 18% year-on-year and 2% quarter-on-quarter, but still about 11% below its estimate due to weaker-than-expected gross refining margins (GRMs). Profit after tax stood at Rs 4,070 crore, up 35% YoY, but also missed Jefferies' expectations by around 11%.
GRMs for the quarter were reported at $8.9 per barrel, lower than Jefferies' estimate of $10 per barrel, despite the commissioning of residue upgradation capacity at the Vizag refinery. Inventory losses and softer refining conditions weighed on profitability.
Refining Soft, Marketing Supportive
While refining margins disappointed, marketing performance was broadly in line. Marketing profitability was estimated to be about 3% above Jefferies' expectations, with diesel and petrol marketing margins averaging Rs 10.4 per litre and Rs 13.9 per litre, respectively, in Q4 FY26 to date. Marketing volumes (excluding exports) rose around 3% year-on-year.
Looking ahead, Jefferies expects Singapore GRMs to remain firm at around $6.5 per barrel in CY2026, supported by demand growth outpacing net refining capacity additions and lower Chinese exports.
LPG Compensation, Projects in Focus
The brokerage highlighted that LPG compensation receivables are likely to support earnings over Q4 FY26–FY27. HPCL has already received Rs 1,320 crore of LPG compensation over November–December and is set to receive the balance monthly till October 2026, directly boosting profits.
However, the upcoming Rajasthan refinery, expected to be commissioned in January 2027, could be a drag on profitability in its initial years due to higher operating and logistics costs.
Jefferies said HPCL is trading at around 1.4x forward FY27 price-to-book, a premium to BPCL, despite lower full-cycle return ratios. As a result, it cut FY26 PAT estimates by 3% and retained its cautious stance, citing limited upside at current valuations.
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