Why HPCL Share Price is Rising

The profits of oil marketing companies (OMCs) like Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation (HPCL) often dance to the tune of crude oil prices.

When crude prices go up due to geopolitical tensions or limited supply, these companies feel a financial pinch. So, there is a unique inverse relationship between crude oil prices and the profits of OMCs.

Recently, public sector OMCs, especially HPCL, have become the talk of the town.

In the last five trading sessions alone, HPCL has seen an impressive rally of 7.7%, mirroring the upward trend in other OMC companies.

Let's find out why.

#1 Falling Crude Oil Prices

The recent surge in HPCL share prices can be attributed to a significant drop in Brent crude oil prices, reaching a four-month low. Over the last month, the price of Brent crude has seen a notable decline of 13.7%.

But, how does falling crude oil prices affect OMCs?

To understand that, you need to understand a term called gross refining margin (GRM).

GRM represents the difference between the price at which the company purchases crude oil and the total value of the petroleum products produced.

In simple terms:

• Rising crude prices lead to lower GRM for OMCs.
• Falling crude prices result in higher GRM for OMCs.

In the recently released September quarter results, HPCL reported an average GRM of US$ 13.3 per barrel, a substantial increase from US$ 8.4 per barrel during the same period of the previous year.

This indicates how HPCL is benefiting from the recent decrease in crude oil prices, as the higher GRM positively impacts the company's financial performance.

#2 Petromin - HPCL Team Up

During the G20 Summit, Petromin Corporation KSA made an announcement of a substantial investment of US$ 700 million (m) (Rs 58.2 bn) in collaboration with HPCL across three key areas.

One of the major initiatives involves Petromin Express India, a subsidiary of Petromin Corporation KSA, partnering with HPCL to invest around US$ 100 m.

The aim of this investment is to establish a network of high-speed electric vehicle (EV) charging units throughout India. This investment is planned to unfold over the next five years, marking a significant stride in HPCL's expansion and growth.

Moreover, it aligns with India's ambitious goals of transitioning towards widespread adoption of electric vehicles, signalling a notable advancement in the country's commitment to sustainable and eco-friendly transportation solutions.

#3 Robust Q2 Results

For the September 2023 quarter, HPCL reported a 10% YoY decline in revenue at Rs 1 trillion (tn) from Rs 1.1 tn a year back.

However, the company reported a consolidated net profit of Rs 58.3 billion (bn) in the September quarter as compared to a loss of Rs 24.7 bn in the same period last year, driving the stock momentum.

This remarkable turnaround is attributed to a higher GRM on a year on year (YoY) basis. Additionally, the company achieved its highest ever half-yearly consolidated profit after tax (PAT) of Rs 126 bn.

HPCL's capability in capitalising on favourable conditions has boosted confidence among investors, leading to an upward trend in its share prices.

#4 Windfall Tax Reduction

The positive sentiment surrounding HPCL has been further contributed by the central government's recent decision to decrease the windfall tax on crude oil.

The reduction, from Rs 9,800 per tonne to Rs 6,300 per tonne, announced on Thursday, 16 November 2023, is a key factor contributing to the favourable outlook for the company.

As the name suggests, a windfall tax is a tax levied by the government only in case the industry is earning unjust windfall gains. The tax is only levied in the public interest.

Hence to control the rising domestic oil price and to meet the domestic need for petrol, on 1 July 2022, the government introduced a windfall tax.

The reduction in the windfall tax is anticipated to contribute to an increase in the company's profits, subsequently propelling the stock higher.

What's Next?

The management at HPCL envisions a future where rising income levels and a growing population will drive increased energy demand. To address this surge, the company is undertaking several strategic initiatives.

In the post-earnings call of September quarter results, HPCL's management disclosed plans to separate its lubricants business, a segment with a nearly 50-year history.

While the specific details on how the company will execute this separation and potential listing remain undisclosed, the decision-making process is expected to conclude within the current financial year.

HPCL is in the process of establishing a nine million metric tonnes per annum (MMTPA) refinery and petrochemical project in Barmer, Rajasthan.

Additionally, there are plans to enhance the capacity of the Visakh refinery to 15 MMTPA. The company is also venturing into new LPG plans.

HPCL is also focused on expanding its presence in overseas markets. The joint venture with Petromin Corporation will play a crucial role in this pursuit.

In response to the government's target of increasing the share of natural gas in the primary energy mix to 15% by 2030, HPCL is actively participating in setting up three natural gas pipelines and expanding its city gas distribution network.

Recognizing the importance of renewable energy, HPCL has already made strides in this direction. In 2021, the company achieved a significant milestone by introducing ethanol-blended petrol in Ladakh, making it the first to do so. Now, HPCL aims to achieve a 20% ethanol blending target (E20) by 2025.

The company has outlined an estimated capital expenditure (CAPEX) plan of Rs 750 bn over the next five years.

Overall, HPCL is strategically aligning itself with emerging trends such as renewable energy, ethanol blending, and electric vehicles (EVs).

Additionally, a stable crude oil price is seen as favourable not just for HPCL but for all OMCs.

How Shares of HPCL have Performed

Over the past one month, HPCL share price has surged by a whopping 20%. In 2023 so far, the shares have rallied over 31.8%.

The company touched its 52-week high of Rs 334.4 on 17 November 2023 and its 52-week low of Rs 207 on 18 November 2022.

Domestic Institutional Investors (DIIs) have increased their stake in HPCL by 4.6% on a year-on-year (YoY) basis. As of the September quarter in 2023, DII now account for 22.6% of the company's stake, a notable increase from the 18% stake they held during the same period last year.

Conversely, Foreign Institutional Investors (FIIs) have reduced their stake by about 3.5%. During this quarter, their stake stands at 13.3%, compared to 16.7% during the same period last year.

Click here to check out the latest shareholding pattern of HPCL.

About HPCL

HPCL is a Maharatna company involved in the refining of crude oil and the marketing of various petroleum products. This extensive range includes, diesel, kerosene, liquefied petroleum gas (LPG), lube oils, petrol, aviation turbine fuel (ATF), and many more.

As the company is among the top three public OMCs, HPCL has a significant 24% market share in the domestic petroleum marketing business in India.

The company's diverse product portfolio and substantial market presence solidify its position as a key player in the Indian energy sector

For more details about the company, you can have a look at the HPCL fact sheet and quarterly results on our website.

You can also compare HPCL with its peers:

HPCL vs BPCL

HPCL vs Reliance Industries

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