HPCL’s reported strong results in 1QFY17 led by the inventory gains of ~Rs 11bn. EBITDA was Rs 36bn and RPAT was Rs 21bn. Results are not comparable owing to inventory, forex and under-recovery impacts.Growth in FY17 may be challenging considering the higher base and muted GRM trend. The benefits of lower crude prices (balance sheet healing and lower interest cost) are mostly priced in. Expansion in marketing margins is the only trigger left. We are positive on HPCL owing to a structural uptrend in marketing segment. The stock has moved up by ~80% over the past 6-months. We see a correction in near term (better entry point) led by the weakness in GRM and no further inventory gains.

Their SOTP target is Rs 1,350 (4x FY18E EV/e for standalone refining, 6.5x EV/e for marketing and Rs 255/sh from other investments). Maintain BUY.