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HPCL -Is The Long Term Trend Still Intact??

HPCL -Is the long term trend still intact??

Hindustan Petroleum Corporation Ltd ( HPCL ) a Fortune 500 company is a popular oil refiner and a Oil Marketing company (OMC) with an annual turnover of 116428 crores.

The company’s profitability was impacted back in October 2018 when the government had announced a reduction of petrol & diesel prices by Rs. 2.5/ltr – of which Rs 1/Ltr had to be absorbed by the company. However, the recent correction in oil prices from ~US$85/bbl to US$60-65/bbl has provided respite to OMCs and marketing margins are likely to improve. Refinery transfer price (RTP) changes on a fortnightly basis, thus in a falling product and crude oil prices environment, the refinery segment reports better margins.

In Q3FY19, although income increased by ~35% yoy , the company’s margins were impacted by inventory losses which were offset by forex gains. HPCL’s core GFM (at 10/bbl) outperformed the benchmark Singapore GRM (4.3/bbl). Going forward, operational efficiencies will play a key role in deciding HPCL’s performance in coming quarters.  Gross Refining Margin (GFM) is likely to improve on account of: 1) Up gradation of Visakh Refinery which will increase the contribution of middle disselates from 51% to 65%. 2) IMO fuel sulphur regulation (2020) which will increase demand for Low Sulphur Fuel Oil and Gas Oil.

Recently, the company also won 9 license deals in Uttar Pradesh and West Bengal to retail – CNG to automobiles and piped natural gas to households. The company, backed by the Indian government, is also set to roll out the new OJAS range –light weight composite LPG cylinders which

The company has maintained RoE at ~31% since the past 3 years. The company has been maintaining a healthy dividend payout ratio 32.65%. Going forward, operational efficiencies will play a key role in deciding HPCL’s performance in coming quarters.

Technical View

HPCL made a big bull candle right on the highs and that was a first warning that the trend of the stock could be turning down. A big bear candle in the very next month left nothing to doubt. The stock corrected 67 % from the highs in  a matter of a year. The stock did pierce the 61.8% zone at 217 but did not close below the zone in any of the months.  For a stock to remain in the bull trend the 61.8% of the major swing should not be broken.RSI on this strong support is indicating a positive divergence and that makes a case for a reversal from the current levels.  The first hurdle the counter will face now is at 262-265 which is the Fibonacci confluence zone and also a trend line resistance in the same zone. Since the reversal has come on the monthly charts the stock will easily zoom all the way to 310 which is the next Fibonacci confluence zone above 265. In percentage terms the stock has a good 25 % move left in it from the current levels of 245.

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