HPCL (Q4 FY07) - Result Update

HPCL (Q4 FY07)



CMP Rs283


Hindustan Petroleum Corporation Ltd (HPCL), reported robust numbers for Q4 FY07 and for the fiscal year ended March 2007 on back of higher bond income and strong volume growth. Higher share of upstream companies in sharing of under recoveries further provided a boost to bottomline growth. Improved GRMs provided additional strength to operational perform ance. Going ahead, the GRMs are likely to remain at current high levels on account of stringent fuel specifications and lower capacity additions compared to increase in demand for petroleum products. With expectations of the sharing pattern of under recoveries in FY07 to continue in FY08, HPCL stands to gain. However, uncertainty with respect to the above issue and also related to the pricing of auto fuels increase risk element in valuations. Hence we recommend only high risk appetite investors to hold on to the stock.


Warm Regards,
Prayesh Jain
India Infoline Ltd.

Usha Martin (Q4 FY07): "Good quarter, Remain positive"

Dear Sir/Madam,
Usha Martin consolidated Q4 FY07 results were on our expected lines with earnings remaining flat qoq at Rs393mn and revenues growing 3.8% qoq to Rs4.99bn. On stand-alone basis, revenue growth was strong at 14.4% qoq while earnings growth was marginal at 2.1% qoq. During the quarter OPM slipped sequentially by 222 bps on stand-alone basis and 100 bps on consolidated basis. Margin was mainly impacted by sharp Rupee appreciation, higher coke prices a nd higher contribution from Agra rolling mill. Full year consolidated numbers were also in line with our expectations. We remain positive on Usha Martin but have marginally tweaked our FY08 EPS estimate downward to Rs33.9 from Rs34.1.

Since our last recommendation at Rs210 in our Q3 FY07 Investment Update in February 2007, the stock has run-up by 16.7%. Despite this, we remain positive on the company for its re-rating potential. At CMP Rs245, company trades at 7.2x FY08E EPS and 5.1x FY08E EV/EBITDA. We believe these valuations does not reflect sufficient premium to commodity steel makers with company's character of an alloy/special steel manufacturer producing high value added products like Wires and Wire Ropes in majority. Also as seen, company's products are subjected to far less cyclical price fluctuations than that of commodity steel players. With operating margin on improvement path from backward integration (iron ore – started & coal - to start) and stress on value added products, we expect material upgrades to valuations.

Click below for the detailed Investment Update:


Warm Regards,

Rajiv Mehta
India Infoline Ltd.


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