Hindustan Petroleum Corporation (HPCL) performance is premised on recovery in domestic demand for petroleum products in FY22, improvement in refining margins over the coming 18 months, and sustainability of auto fuel gross margin over INR 4.0/lit.

Q1FY22 EBITDA was 2% below our estimate and APAT was 9% below, owing to lower-than-expected gross margin, forex loss and lower other income. GRM was reported at USD 3.3/bbl (HSIE: USD 3.7/bbl).

Refining: Crude throughput in Q1 stood at 2.5mmt (-37% YoY, -43% QoQ), on account of the planned shutdown in Mumbai refinery during the quarter and fire accident at Vizag refinery, resulting in an overall combined capacity utilisation of 64% at its refineries in Q1FY22.

Marketing: Domestic marketing sales volume was 8.5mmt (+17% YoY, -14% QoQ). Blended gross margin stood at INR 3.7/lit (-51% YoY, +5% QoQ). We estimate blended gross margin at INR 4.8/lit in FY22E and INR5.0/lit in FY23E.

Con call takeaways: (1) Capex planned for FY22 and FY23E is INR 145bn each. (2) Borrowings as at Jun'21-end stood at INR 352bn. (3) 142 retail outlets added, taking the total to 18,776 as at Jun'21-end. (4) Mumbai refinery expansion should be completed in Aug-21. It is expected to reach 100% utilisation by Q3FY22. (5) The Vizag refinery expansion should be complete by FY22-end, barring bottom upgradation. Post expansion, the capacity will reach 13mmtpa by FY22-end and 15.5mmtpa after completion of bottom upgradation.