Hindustan Petroleum Corporation Ltd. Upgraded to Strong Buy on Robust Valuation and Financial Performance

Valuation: From Attractive to Very Attractive

The primary driver behind HPCL’s rating upgrade is a marked improvement in its valuation profile. The company’s price-to-earnings (PE) ratio stands at a low 7.15, significantly below the Oil India peer’s 11.21, signalling undervaluation relative to sector benchmarks. Other valuation multiples reinforce this view: the enterprise value to EBITDA ratio is 6.06, and the EV to EBIT ratio is 8.00, both indicating a discount compared to historical averages and industry peers.

HPCL’s price-to-book value of 1.75 and an exceptionally low PEG ratio of 0.03 further highlight the stock’s compelling valuation, especially given its strong earnings growth. The dividend yield of 3.31% adds to the stock’s appeal, offering investors a steady income stream alongside capital appreciation potential. The enterprise value to capital employed ratio of 1.37 confirms efficient capital utilisation, supporting the valuation upgrade to “very attractive.”

Financial Trend: Strong Growth and Profitability

HPCL’s financial trajectory has been impressive, with the company reporting positive results for three consecutive quarters, including Q2 FY25-26. Net sales have grown at an annualised rate of 13.76%, while operating profit has surged by 26.26%, reflecting operational efficiency and favourable market conditions.

Profit before tax excluding other income (PBT less OI) for the quarter reached ₹4,608.59 crores, a robust 57.9% increase compared to the previous four-quarter average. Net profit after tax (PAT) stood at ₹3,859.30 crores, up 51.2% over the same period. These figures underscore HPCL’s ability to convert revenue growth into substantial bottom-line gains, justifying the upgrade in financial trend assessment.

Return on capital employed (ROCE) is a healthy 17.12%, while return on equity (ROE) is an impressive 24.49%, signalling strong profitability and efficient use of shareholder funds. These metrics contribute to the company’s elevated financial trend rating and support the overall upgrade.

Quality: Strong Operational and Market Position

HPCL’s quality metrics remain robust, reflected in its MarketsMojo Mojo Score of 81.0 and an upgraded Mojo Grade from Buy to Strong Buy. The company ranks among the top 1% of over 4,000 stocks rated by MarketsMojo, placing 7th among mid-cap stocks and 17th across the entire market. This elite positioning is a testament to HPCL’s consistent operational excellence, strong governance, and market leadership in the oil sector.

Institutional holdings stand at a significant 36.73%, indicating strong confidence from sophisticated investors who typically conduct rigorous fundamental analysis. This institutional backing provides stability and reflects the company’s quality credentials.

Technicals: Consistent Outperformance and Price Stability

From a technical perspective, HPCL has demonstrated consistent outperformance relative to broader market indices. The stock has delivered a 15.23% return over the past year, outperforming the Sensex’s 8.21% gain during the same period. Over longer horizons, HPCL’s returns have been even more impressive, with a 3-year return of 201.90% and a 5-year return of 227.77%, far exceeding the Sensex’s respective 39.17% and 77.34% gains.

Despite a modest day change of -1.26% on 31 December 2025, the stock remains near its 52-week high of ₹494.55, currently trading at ₹468.35. The 52-week low of ₹287.55 highlights the stock’s strong recovery and resilience. Technical indicators suggest a stable price base supported by healthy volumes and institutional interest, reinforcing the upgrade to a Strong Buy rating.

Comparative Industry Analysis

When compared to peers such as Oil India, HPCL’s valuation and financial metrics stand out. Oil India’s PE ratio is 11.21, and EV to EBITDA is 9.08, both notably higher than HPCL’s 7.15 and 6.06 respectively. This valuation gap, combined with HPCL’s superior profitability and growth metrics, makes it a more attractive investment proposition within the oil exploration and refinery sector.

The company’s PEG ratio of 0.03 versus Oil India’s 0.00 (reflecting flat growth) further highlights HPCL’s earnings growth potential relative to its price, reinforcing the very attractive valuation grade.

Long-Term Growth and Market Positioning

HPCL’s long-term growth story remains compelling. The company has consistently outperformed the BSE500 index over the last three years, delivering superior returns and profit growth. Over the past decade, HPCL has generated a remarkable 282.61% return, compared to the Sensex’s 226.18%, underscoring its sustained value creation for shareholders.

Its strong operational performance, combined with prudent capital allocation and a focus on efficiency, positions HPCL favourably to capitalise on future sectoral opportunities. The company’s ability to maintain a high dividend yield of 3.31% while growing profits by over 231.8% in the last year highlights its balanced approach to rewarding shareholders and reinvesting for growth.

Conclusion: A Strong Buy with Conviction

The upgrade of Hindustan Petroleum Corporation Ltd. to a Strong Buy rating reflects a comprehensive improvement across all key investment parameters. The valuation has become very attractive, supported by low multiples and a high dividend yield. Financial trends demonstrate robust growth and profitability, while quality metrics and institutional confidence remain high. Technical indicators confirm the stock’s resilience and consistent outperformance relative to benchmarks.

Investors seeking exposure to the oil sector with a fundamentally strong, well-valued, and consistently performing company will find HPCL an appealing proposition. The company’s leadership position, solid financials, and attractive valuation underpin the confidence behind this upgrade, making it a compelling addition to mid-cap portfolios.

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