Hindustan Petroleum Corporation Company Update by HDFC Securities Institutional Research Report: 04, Feb 2026

Marketing Margin to Prop Earnings

We upgrade Hindustan Petroleum Corporation (HPCL) from REDUCE to BUY with a target price of INR 579, owing to (i) the potential improvement in marketing margin leading to increased profitability. We factor in a marketing margin of INR 6.4/6.8/7.2 per liter for FY26/27/28 and core GRM of USD 8.7/7.7/6.8 per bbl for FY26/27/28, resulting in EBITDA/PAT CAGRs of 31/51% over FY25 to FY28E. Currently, the stock is trading at 4.0x FY27 EV/EBITDA and 1.2x FY27 BV.

• Integrated margin to remain strong: HPCL’s earnings have the highest sensitivity to changes in marketing margins among the Indian OMCs due to the high share of marketing business. This earnings sensitivity leads to the highest negative correlation between HPCL’s marketing and refining margins among the Indian OMC players (-0.91). As we believe that gross refining margin could cool down in the coming quarters, marketing margin is likely to increase, resulting in integrated margins remaining strong. Considering HPCL’s earnings being highly sensitive to changes in marketing margin, the company is well placed to benefit from any potential increase in marketing margin, in our view. Considering the potential improvement in marketing margin, we revise our FY26/27/28E marketing margin assumption to INR 6.4/6.8/7.2 per liter.
• Petchem: HPCL, along with its JV partner, the government of Rajasthan, is building an integrated refinery and petrochemical complex in Rajasthan. This complex is being built with an estimated capex of INR 720bn and will have a refining capacity of 9MMTPA, including petrochemical capacity of 2.4MMTPA. Once completed, the complex will more than double HPCL group’s petrochemical capacity from 2.2MMTPA currently to 4.6MMTPA. While the refinery is expected to come online in Q4FY26, the petrochemical unit is expected to begin operations in Q2FY27. We believe the petrochemical plant should achieve a capacity utilization of ~50% for H2FY27E and ramp up to 100% utilization by the end of FY27. At 100% utilization, the petrochemical plant is able to generate a gross margin of ~USD 7/bbl, in our view.
• Refining: HPCL has completed the residual upgradation of its Visakhapatnam refinery which has a refining capacity of 15MMTPA. This will now enable it to further process fuel oil to diesel. We believe this increased diesel production will result in a USD 2.3/bbl GRM improvement, resulting in ~INR 17bn of incremental gains per annum. Moreover, the 9MMTPA integrated refinery located in Rajasthan is expected to begin operation in Q4FY27 and reach utilization by the end of FY27. We estimate standalone GRMs at USD 8.7/7.7/6.8 for FY26/27/28E.
• Valuation and change in estimates: We have increased our FY26/27E EPS estimates by 23/84% respectively. Our SOTP target price of INR 579 is based on 4.5x Mar-27E EV/EBITDA for standalone refining, marketing and pipeline businesses respectively, and INR 118/sh for other investments. The stock is currently trading at 4.8x Mar-27E EPS.

BUY: CMP (as on 03 Feb 2026): INR 451

• Target Price: INR 579
• NIFTY: 25,728

KEY CHANGES

KEY STOCK DATA

• Bloomberg code: HPCL IN
• No. of Shares (mn): 2,128
• MCap (INR bn): 959
• Free float (%): 49
• 52 Week high / low: INR 508 / 238

STOCK PERFORMANCE (%)

SHAREHOLDING PATTERN (%)

Consolidated financial summary

Source: Company, HSL Research

Article Source: HSIE Report (https://www.hdfcsec.com/hsl.docs/OMC%20-%20Thematic%20-%20Feb26%20-%20HSIE-202602041342388840128.pdf)

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