Prabhudas Lilladher has maintained its “Accumulate” recommendation on Hindustan Petroleum Corporation with a revised target price of Rs 427, compared with the current market price of around Rs 390. The brokerage believes HPCL delivered a remarkably strong operational performance in Q4FY26, aided by a sharp recovery in refining margins and resilient marketing profitability despite ongoing pressure in retail fuel pricing. However, analysts remain cautious about FY27 due to expected weakness in gross marketing margins, elevated crude procurement premiums, and geopolitical disruptions impacting LPG sourcing. Even so, HPCL’s improved balance sheet, disciplined capex management, and refining expansion projects continue to support medium-term valuation comfort.

PL Capital Retains ‘Accumulate’ Call on HPCL Amid Margin Volatility

HPCL delivered a significantly stronger-than-expected quarterly performance in Q4FY26, with EBITDA rising to Rs 89.8 billion, sharply outperforming PL Capital’s estimate of Rs 43.7 billion. The earnings surprise was primarily driven by stronger gross refining margins (GRMs), which surged to USD 14.3 per barrel compared with USD 5.4 per barrel in the previous quarter.

Despite a forex loss of Rs 14.5 billion during the quarter, the company managed to report a healthy operational rebound. Net profit for the quarter climbed to Rs 49 billion, reflecting a 46.1% year-on-year increase, while EBITDA margins improved to 7.8% from 5.3% in the corresponding quarter last year.

Refining Business Emerges as the Biggest Earnings Driver

The refining segment remained the key pillar supporting HPCL’s quarterly profitability. GRMs improved sharply amid stronger crack spreads caused by volatility and supply disruptions in West Asia. Refining throughput remained broadly stable sequentially at 6.4 million metric tonnes, although it declined 4.6% year-on-year.

PL Capital highlighted that the company benefited from stronger product cracks across transportation fuels, particularly diesel and gasoline, which helped offset rising crude sourcing costs. The brokerage expects normalized GRMs of approximately USD 7.3 per barrel for FY27 and USD 7.1 per barrel for FY28.

Marketing Margins Face Pressure Despite Stable Volumes

Although HPCL’s marketing business remained profitable, near-term stress is beginning to emerge. Marketing sales volumes, including exports, increased 2.4% year-on-year to 13 million metric tonnes. However, sequential demand softness persisted across motor spirit (MS), high-speed diesel (HSD), and LPG categories.

PL Capital warned that marketing margins are likely to remain under pressure in Q1FY27 because retail selling prices for petrol and diesel have not been increased despite elevated crude procurement costs. The brokerage currently estimates gross marketing margins at only Rs 2.1 per litre for FY27 before recovering toward Rs 4.9 per litre in FY28.

LPG Under-Recoveries Continue to Remain a Major Concern

The LPG business remains one of the largest earnings overhangs for oil marketing companies. HPCL disclosed that LPG under-recoveries reached Rs 52 billion during FY26, including Rs 13.5 billion in Q4FY26 alone.

Although the Ministry of Petroleum and Natural Gas approved compensation support of Rs 79.2 billion industry-wide, HPCL itself received only Rs 33 billion during FY26. The company indicated that losses per LPG cylinder widened significantly during recent months due to geopolitical supply disruptions and rising import premiums.

Management revealed that LPG losses stood at:

• Rs 84 per cylinder in Q4FY26
• Rs 170 per cylinder in April 2026
• Rs 670 per cylinder in May 2026

This sharp deterioration reflects the ongoing strain in international LPG supply chains following instability in the Persian Gulf region.

Supply Security and Inventory Management Provide Stability

HPCL has moved aggressively to secure crude supply continuity amid geopolitical uncertainty. The company maintained crude inventory coverage of nearly 60 days and confirmed that supplies for May and June 2026 have already been fully secured. Procurement arrangements for July are also partially finalized.

Management stated that the company has increasingly diversified its crude sourcing mix after recent geopolitical disruptions. HPCL is now relying more heavily on spot cargo procurement while maintaining strategic inventory buffers across its refining network.

PL Capital noted that these inventory safeguards reduce near-term operational risk even though higher premiums may temporarily compress profitability.

Operational Efficiency Measures Improve Financial Position

HPCL’s internal cost optimization program delivered meaningful financial benefits during FY26. The company’s “Samriddhi” initiative generated savings of Rs 16.9 billion, surpassing management guidance of Rs 15 billion.

The program included:

• Rs 9.5 billion in one-time savings
• Rs 7.4 billion in recurring annual savings

HPCL also reduced working capital requirements substantially, lowering debt by nearly Rs 85 billion. Net debt-to-equity improved to 0.8x in FY26 from 1.3x in FY25, strengthening the company’s balance sheet position.

Project Pipeline Remains Critical for Future Earnings Expansion

Several major downstream infrastructure projects are expected to shape HPCL’s medium-term growth trajectory. Management indicated that the Residue Upgradation Facility (RUF) project is progressing slower than expected but should gradually ramp up through Q1FY27 and Q2FY27.

Meanwhile, the HRRL refinery project faced temporary operational disruptions due to residual leakage in the CDU unit. However, production normalization is expected by Q2FY27 with utilization levels currently around 60%.

The Chhara terminal project is also nearing completion, with approximately 90-95% of breakwater construction already finished.

Valuation Outlook and Investment View

PL Capital has marginally increased its valuation multiple while maintaining a constructive medium-term stance on the stock. The brokerage now values HPCL at 1.2x FY28 estimated price-to-book value, compared with 1.1x earlier.

While FY27 earnings are expected to remain volatile due to weak marketing margins and elevated LPG losses, analysts believe normalization in refining profitability and project commissioning could improve profitability sharply in FY28.

Key Levels for Investors:

• Current Market Price: Rs 390
• Target Price: Rs 427
• Upside Potential: Approximately 9-10%
• Brokerage Rating: Accumulate

PL Capital believes HPCL remains strategically positioned within India’s downstream energy ecosystem, although investors should remain prepared for earnings volatility linked to crude oil pricing, geopolitical tensions, and government intervention in fuel pricing.