1:2 Bonus Issue, Rs 16.50/Sh Dividend: BUY Maharatna Oil PSU Stock HPCL For Rs 400 Target: Motilal Oswal

Maharatna PSU oil and gas stock, HPCL has remained the top pick of Motilal Oswal. In its latest note, the brokerage said that it prefers HPCL over GAIL and Oil India as it sees strong 25% volume growth (due to HRRL start-up), USD1.5-2/bbl margin expansion due to bottom upgrade project completion, and modest valuations as key catalysts. HPCL which has recently turned ex-bonus and is set to pay a hefty dividend, is recommended to buy accordingly.

In its latest research note, Motilal said, "The average one-year fwd. P/E valuation for the 15 oil and gas stocks in our coverage is 13.5x now, up 35% vs. Jun'23. Barring a few stocks, which still have reasonable valuations, we believe the value trade has all but faded away for the Indian oil and gas sector."

It further added, "We now prefer HPCL over GAIL and Oil India (OINL), where we believe valuation comfort is lower and earnings delivery is critical. HPCL trades at FY26E P/B of 1.2x (FY26E RoE: 17.8%) vs. GAIL's 1.7x and OINL's 1.3x (FY26E RoE of 15%/16%)."

On HPCL's valuation, Motilal's note said, "HPCL remains our preferred pick among the three OMCs. We model a marketing
margin of INR3.3/lit for both MS and HSD in FY25-26E, while the current MS/HSD marketing margins are INR10.2 /lit and INR4.8/lit, respectively."

Further, Motilal sees the following as key catalysts for the stock: 1) the demerger and potential listing of the lubricant business, 2) the commissioning of its bottom upgrade unit, and 3) the start of its Rajasthan refinery in 4QFY25.

Hence, Motilal said, "HPCL currently trades at 1.2x FY26E P/B, which we believe offers a reasonable margin of safety as we estimate FY26 ROE of 17.6%. We value the stock at 1.4x FY26E P/BV to arrive at our TP of INR400. Reiterate BUY."

HPCL's share price is currently trading at Rs 333.60 apiece, down by 1.23% on BSE with a market cap of Rs 70,984.16 crore. The stock's 52-week high and low is at Rs 396.66 apiece and Rs 159.58 apiece respectively.

The OMC has announced a bonus issue in the ratio of 1:2. Meaning, HPCL will distribute 1 bonus share free of cost for every existing 2 shares held by investors. The record date was fixed on July 21, 2024.

Going ahead, HPCL has recommended a final equity dividend of Rs 16.50 per equity share having a face value of Rs. 10/- each (pre-bonus), which translates into a final dividend of Rs. 11 per equity share having a face value of Rs. 10/- each (post-bonus) for the Financial Year 2023-24, subject to the approval of the shareholders of the Company.

The record date for the final dividend is fixed on August 9, 2024. HPCL said that the same will be paid within 30 days from the date of the declaration at the ensuing AGM. Also, the final equity dividend is in addition to the Interim Dividend(s) of Rs 15.00 per share (pre-bonus) paid for the financial year 2023-24.

For FY24, the company's consolidated PAT is at Rs 16,015 crore during FY 2023-24 (Consolidated Net Loss of Rs 6,980 crore during the previous financial year). The Standalone PAT during FY 2023-24 was also the highest ever at Rs 14,694 crore (Standalone Net Loss of Rs 8,974 crore during the previous financial year).

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.