HPCL

ICICI Securities maintains a 'buy' on HPCL
6 Aug, 2008

CMP: Rs 234.20
Target price: NA

ICICI Securities has maintained a ‘buy’ rating on HPCL even after the company reported a recurring loss of Rs 880 crore in the first quarter of the current financial year due to lower than expected subsidy support from the government and upstream companies.

The brokerage expects subsidy support to increase over the year as the government has not yet accounted for the Rs 40,000 crore unallocated burden. “Though we continue to believe that the stock may remain subdued in the short term till the government decides the final subsidy burden-sharing formula, the company is trading at a significant discount to the replacement value of its asset,” says the report.

The brokerage also highlights the fact that risks of further increase in interest costs along with expectations of a fall in refining margins could potentially impact earnings. Positive surprise, however, on higher subsidy sharing by upstream companies and oil bonds could be a boost to stock prices, it adds.

Positive news on the E&P front and implementation of subsidy reforms recommended by the Rangarajan Committee could trigger re-rating in the stock, says the report.