Brokerages have different verdicts on India’s state refiner. One sees 46% upside, the other warns of value traps.
The problem with investing in oil refiners is an agreement on what they are actually worth is difficult.Take Hindustan Petroleum Corporation (HPCL), which just reported quarterly earnings that somehow managed to disappoint both bulls and bears simultaneously.
Elara’s analysts have slapped a Rs 627 price target on the stock—a cool 46% above current levels. “We reiterate our positive view on HPCL due to weak crude oil price environment, declining capex intensity and commissioning of Rajasthan refinery,” the firm notes.
JM Financial, meanwhile, just upgraded HPCL from SELL to REDUCE, not really the kind that should riase eyebrows. The target? Rs 410. But behind the two divergent views, something interesting is happening.
The Numbers Don’t
HPCL posted Q3 profit of Rs 40.7 billion, up 35% year-on-year. It was, however, “lower than our estimate of Rs 60.4 billion as HPCL reported lower than expected GRM,” says Elara. The gross refining margin came in at $8.85 per barrel versus expectations of $9.7, partly due to “operational issues due to processing of crude oil from B-80 oilfield.”
JM Financial found the results “largely in line with JMFe of Rs 69.4 billion (but below cons of Rs 75.3 billion).”
What actually drove profits? Government subsidies. “LPG under-recovery was Rs 5 billion in Q3FY26 versus Rs 31 billion losses in Q3FY25. However, it was offset by the government’s LPG compensation of Rs 13.2 billion,” Elara notes.
The Margin Squeeze
Marketing margins tell a worrying story. Elara calculates that “Q3 retail diesel margin was Rs 3.9/liter versus Rs 9.3/liter in Q3FY25, and gasoline margin was Rs 9.0/liter versus Rs 12.8/liter in Q3FY25.” Those are serious compressions.
Yet the “marketing segment EBITDA was higher at Rs 45 billion vs. JMFe of Rs 41 billion,” says JM suggesting the company squeezed better economics from each liter sold despite lower absolute margins.
The Rajasthan Gamble
JM Financial however has a caution on the Rajasthan project. “Its huge Rs 730 billion Rajasthan refining project may earn single-digit RoCE due to significant time/cost escalation.”
The project is nearly done. JM Financial reports “overall physical progress in the Rajasthan Refinery project was >90%; crude oil has been received in the refinery tank, and crude-in to CDU is expected by end-Jan’26.” The company also commissioned upgrades where it “achieved ~93% conversion of bottom oils into high-value products” and delivered “EBITDA accrual of Rs 12.7 billion or USD 0.54/bbl in 9MFY26 under Project Samriddhi.”‘
Another factor is the refining margin that will stablilse. OMCs’ integrated refining cum marketing margin will normalise around historical levels in the medium term as the government may retain the benefit of any sustained fall in crude price via excise duty hike and/or fuel price cut.”
Elara sees it differently. “The Energy Information Administration expects weak global oil demand growth in CY26 at ~0.86mmbpd YoY, while oil supply is increasing globally, which is bullish for HPCL’s retail margins.” When crude stays cheap but pump prices remain sticky, retailers win.
The Valuation Puzzle
The stock trades at “1.1x FY28 PB, in line with last 3-year average,” says JM Financial. Not expensive, not cheap. Elara has trimmed “FY26E/27E/28E EBITDA estimates by 5%/6%/5% on weaker INR impacting retail margins” but still sees massive upside.
One bright spot: “standalone gross debt decreased by Rs 71 billion QoQ to Rs 487 billion and consolidated gross debt also fell by Rs 68 billion QoQ to Rs 521 billion,” notes JM Financial. For a capital-intensive business, deleveraging matters.
