Recommendation From Other Oil and Refineries Sector & Agricultural & Commodity Chemicals Sector

HPCL

CMP - Rs.240.40
BSE CODE 500104
Volume 1739845
Face Value Rs.10
Target Rs.261
Stoploss Rs.219

The fourth largest refinery by market capitalisation, Hindustan Petroleum posted FY18 topline and bottomline growth, but most importantly, TTM portrays growth of 15.6% and 2.4%, respectively, posting operational performance in marketing as well as refining. The company posted robust gross refining margin (GRM) growth of 25% YoY in benchmark and 39% YoY in core in FY18 with 17% rise in crude oil prices in the same period. It also reported 2.6% increase in refinery throughput at its two refineries to 18.21MMT. Its installation of diesel hydro treater unit and replacement of catalyst FCCU unit have helped diesel production growth of 38% in FY18. In marketing, it witnessed sales volume growth of 4.7%. It gained market share for MS and LPG by 100 and 128 bps, respectively. The pipeline throughput growth came in at 12.5% in FY18. Refinery, marketing, and pipeline businesses posted gross margin growth of 40.4%, 12.4% and 14.4%, respectively. Though the company's JVs and subsidiaries like HMEL have posted a decline in profits, its expansion in FY18 would revive profitability in FY19. We recommend a BUY.

DEEPAK NITRITE

CMP - Rs.275.70
BSE CODE 506401
Volume 236,854
Face Value Rs.2
Target Rs.304
Stoploss Rs.250

Deepak Nitrite is basically a chemical company engaged in manufacturing of intermediates that cater to dyes and pigments, agro-chemicals, pharmaceuticals, plastics, textiles, paper, home and personal care segments. Basic chemicals (BC), fine & speciality chemicals (FSC) and performance products (PP) generate 49.5%, 30.7% and 19.8% revenue, respectively. Financially, it has posted robust Q2FY19 results with 22% growth in both revenue and PAT on YoY basis. Domestic and export revenues grew by 32% and 7% YoY, respectively. BC, FSC and PP segments posted YoY revenue growth of 19%, 27% and 15%, respectively. Its TTM revenue and PAT showed growth of 11.2% and 9.6%, respectively. It has recently started production of phenol and acetone at the facility equipped to manufacture 2 lakh MTPA and 1.2 lakh MTPA, respectively. This would help the company to cater to increasing demand and the availability would boost production of downstream intermediaries. Thereby, FY19 would prove to be the milestone year for the company as commissioning of the aforesaid project would help import savings of USD 400 million. We recommend a BUY.

(Closing price as of Nov 02, 2018)