- HPCL's 3QFY26 EBITDA fell 17% short of estimates, dragging PAT down 20%.
- Gross Refining Margin (GRM) slipped 7% to $8.9/bbl, while gross marketing margin hit ~₹5.4/litre.
- The stock trades at just 1.2× FY27E P/B, implying a 21.9% FY27E RoE.
- Motilal Oswal maintains a BUY rating with a target of ₹600.
- Sector peers are reacting differently, creating relative value opportunities.
You missed HPCL's earnings surprise, and it could cost you big.
Why HPCL's 3QFY26 EBITDA Miss Signals a Turning Point
EBITDA, the cash‑flow proxy that strips out taxes and financing, landed at ₹72.6 billion—17% below Motilal Oswal’s consensus. The miss stems from weaker-than‑expected refining throughput and a dip in marketing volumes. In practical terms, every rupee of EBITDA shortfall translates into less cash for dividend payouts, cap‑ex, and debt servicing. For investors, this raises the immediate question: is the shortfall a one‑off operational hiccup or the start of a longer‑term earnings drag?
HPCL's Gross Refining Margin Squeeze and Its Ripple Across India's Oil Sector
The Gross Refining Margin (GRM) is the difference between the price of crude oil and the price of refined products, expressed per barrel. HPCL reported a GRM of $8.9 bbl, 7% below the firm’s internal model. Simultaneously, the gross marketing margin—what the company earns after subtracting the cost of inventory—settled at roughly ₹5.4 per litre, shy of the ₹6 estimate. A tighter GRM compresses profit cushions for all refiners, especially in a market where crude import costs are volatile. The sector‑wide implication is a potential re‑rating of peers, as investors adjust earnings forecasts for the entire refining chain.
HPCL vs. Peers: How Tata, Hindustan & Others Are Positioning Themselves
While HPCL wrestles with margin compression, Tata Petrochemicals has leveraged a more diversified petrochemical portfolio to buffer its earnings, and Hindustan Petroleum reported a marginal GRM improvement thanks to a favorable crude basket mix. Adani’s recent upstream acquisitions provide a crude cost advantage, allowing it to sustain higher margins. The divergent trajectories mean that relative valuation spreads are widening—HPCL’s P/B of 1.2× may look attractive compared to a peer trading at 1.5× with similar RoE prospects.
What History Teaches Us About HPCL's Refining Cycles
HPCL has faced similar margin squeezes in FY21‑22 when global crude prices spiked. Back then, the company responded with a strategic shift toward higher‑margin diesel blends and accelerated inventory turnover, restoring its GRM within two quarters. Historical patterns suggest that management can pivot quickly, but the speed of execution depends on supply‑chain agility and regulatory headwinds. Investors should therefore weigh the likelihood of a comparable turnaround against the current macro backdrop, which includes tighter fuel norms and a push for renewable blending.
HPCL Valuation: Decoding the 1.2× FY27 P/B Multiple
A price‑to‑book (P/B) ratio of 1.2× signals that the market is pricing HPCL just modestly above its net asset value. Motilal Oswal projects a FY27 Return on Equity (RoE) of 21.9%, well above the sector average of ~15%. When you combine a low P/B with a high RoE, the implied earnings yield is compelling. Using a simple “Sum‑of‑the‑Parts” (SoTP) methodology, the analyst arrives at a target price of ₹600, implying roughly a 15% upside from current levels. The margin of safety stems from both the conservative multiple and the expectation of margin recovery.
Investor Playbook: Bull and Bear Cases for HPCL
Bull Case: Margin recovery driven by a favorable crude‑to‑product price spread, successful inventory management, and incremental capacity additions at the Mumbai refinery. The low P/B and high projected RoE provide a cushion against valuation risk, making the stock a “buy‑on‑dip” candidate.
Bear Case: Prolonged GRM weakness due to sustained high crude import costs, stricter emission norms forcing costly upgrades, and competitive pressure from integrated players like Adani. A deeper earnings miss could push the stock into a value trap despite the attractive multiple.
In summary, HPCL’s latest earnings reveal both a near‑term earnings gap and a longer‑term valuation bargain. The decisive factor will be how quickly the company can reverse the margin squeeze while navigating sector dynamics. Positioning now requires balancing the upside of a potential margin rebound against the downside risk of a prolonged earnings drag.