Prabhudas Lilladher has downgraded Hindustan Petroleum Corporation (HPCL) to 'Reduce' from 'Hold' with a revised target price of ₹350, down from the earlier target of ₹386. According to the research report dated July 24, 2026, the downgrade is based on 1.1x FY28E P/BV valuation. The brokerage expects the benefits of the Residue Upgradation Facility (RUF) at Vizag to materialize only after the next few quarters, delaying immediate value realization. Nomura has also cut its price target to ₹420 from ₹440, implying an upside of 9.1% from current market price, citing the company's high leverage and crude oil price sensitivity.
HPCL's standalone EBITDA loss (including foreign exchange loss of ₹2 billion) widened to ₹16,100 crore, significantly worse than Nomura's estimate of ₹13,900 crore loss and Prabhudas Lilladher's projection of ₹149.4 billion. This "washout" quarter was primarily driven by massive fuel retailing losses and marketing under-recoveries exceeding ₹26,000 crore for petrol, diesel, and LPG. However, PAT came in better than street expectations at a loss of ₹115.3 billion, beating estimates of ₹125.5 billion (Prabhudas Lilladher) and ₹123.0 billion (BBGe). The better-than-expected PAT was aided by tax benefits, as reported by Prabhudas Lilladher.
HPCL's leverage rose sharply to 1.43x in Q1FY27 from 0.78x in the previous quarter due to increased debt and losses. Management is responding with a seven-pronged strategy that includes tightening capex (targeting less than ₹9,700 crore for FY27) and refinancing high-cost loans to repair the balance sheet. As per Nomura, "One weak quarter has undone the deleveraging cycle of the last 2-3 years for HPCL." The brokerage expects deleveraging to play out gradually on lower capex intensity and healthy cash flow generation from earnings recovery.
Pre-SAED GRM improved sharply to USD 23.8 per barrel, translating to an implied GMM under-recovery of ₹14.9 per liter, compared with a profit of ₹6.3 per liter in Q4FY26. The Rajasthan refinery (HRRL) declared commercial operations on June 22, 2026, and is expected to reach full capacity by Q4FY27. The Vizag Residue Upgradation Project (RUF) is targeted for stabilisation in Q2 FY27 to lift profitability. Based on Q1FY27 performance, Prabhudas Lilladher has revised upward its FY27E GRM estimate to USD 8.7 per barrel and marginal increase its FY28E estimate to USD 7.9 per barrel.
HPCL's share price has fallen 2.4% in the past five trading days and declined 5.7% in the past six months, with a 6.3% drop over the previous one year. However, the stock has surged 1.5% in the last one month. Nomura indicated a preference for other oil marketing companies like Indian Oil Corporation and Bharat Petroleum Corporation over HPCL, citing the company's high crude oil price sensitivity and current challenges. The brokerage noted that HPCL is the most leveraged to crude oil prices among its peers due to heavy external sourcing for gasoline and diesel marketing.
