HPCL shares: Nomura maintains ‘Neutral’, cuts target price to Rs 380 after Q2 beat

Strong refining margins and lower marketing losses drive Q2 beat HPCL reported standalone EBITDA of Rs 91 billion for Q2FY27, against Nomura’s estimate of Rs 38 billion. Bloomberg consensus had projected a loss of Rs 1 billion. The company’s gross refining margin (GRM) came in at around $32 per barrel, broadly in line with Nomura’s estimate, as crack spreads remained elevated amid global refining outages and product shortages.

However, OMCs are recording losses of around Rs 26 per litre at the current run rate, according to Nomura. The brokerage said a possible escalation of the Middle East war after the US midterm election remained a key upside risk to oil prices and an overhang on the earnings outlook for OMCs. Nomura said HPCL’s sharp re-rating during 2023-25 was driven by exceptionally strong, historically high marketing margins, with the company having the highest exposure to marketing margins among OMCs.

The brokerage believes the era of fuel marketing margins above Rs 8 per litre may be over, citing three factors: crude oil prices may not fall to $65 per barrel soon; the rupee’s depreciation of around 4.4% against the US dollar over the past eight months could result in a permanent hit of Rs 3-4 per litre to fuel retailing; and the Rs 10-per-litre excise duty cut in March 2026 could be temporary, with the government potentially reversing it at the first opportunity.

HRRL refinery to reach full capacity by December HPCL told analysts that its 9 million-tonne-per-annum HRRL refinery, in which it holds a 74% stake, could run close to full capacity by the end of December. The refinery is currently reporting a GRM of $16 per barrel after special additional excise duty (SAED), implying a positive profit before tax at the current run rate, Nomura said. Management has also reduced the refinery’s cost of debt by 105 basis points after refinancing around Rs 520 billion of debt as the facility moved from project financing to operational status.

This is expected to generate annual interest savings of Rs 4.7-5 billion from October 2026. The full benefit of the residue upgradation facility (RUF) upgrade at the Vizag refinery, estimated at $2-3 per barrel, is expected by March 2027. The current benefit stands at $0.7-1 per barrel. Nomura cuts target price to Rs 380 Nomura lowered its sum-of-the-parts-based target price to Rs 380 from Rs 420 after increasing its assumptions for fuel marketing losses and LPG under-recoveries.

The changes resulted in a 5% cut to its FY28 EBITDA estimate and an 8% cut to its FY29 estimate. HPCL trades at 5.1 times FY28 estimated enterprise value to EBITDA and 1.2 times price-to-book value, according to the report. Among the oil marketing companies covered by the brokerage, Nomura said it preferred Indian Oil Corporation and Bharat Petroleum Corporation, both rated ‘Buy’.