Record throughput, historic loss: inventory crisis masks structural upside

₹12,264.7 Cr net loss; ₹26,000 Cr marketing under-recovery; inventory write-downs in 5-digit Cr range

HRRL at 60% CDU utilization end-Q1, not yet ramping; RUF still in stabilization phase with technological challenges

Crude fell $25 in 2 weeks; ₹2,635 Cr Vizag inventory losses confirmed; total estimate ₹10,000-20,000 Cr across portfolio

Revenue growth 20.8% YoY; throughput maintained aggressively; no supply disruptions reported by analysts

Prior call: 'some inventory headwinds'. Delivered: ₹10,000-20,000 Cr, making Q1 an outlier. Not structural unless volatility persists.

Prior call: 'HRRL and RUF to contribute positively from Q2'. Delivered: HRRL at 60% utilization end-Q1 (not ramping yet); RUF still stabilizing with tech challenges. Full contribution now Q3/Q4.

Prior: DE of 0.8 at end-FY26. Delivered: DE 1.5 at end-Q1, debt ₹72,000 Cr. Added ₹1,900 Cr/week for 13 weeks. Management says 'top of mountain' but not yet descending.

Analyst Nitin Tiwari noted HPCL refining margins under peers for last 20 quarters. Management acknowledged structural (East Coast, no gas at Vizag, delayed coker ramp). Claims future improvement but unproven.

Well-covered till end-Aug. Inventory will reverse as markdown crude at quarter-end is lower-cost. LPG diversified away from Strait dependency.

Transfers net of SAED. Marketing under-recovery ₹26,000 Cr for quarter (₹20,000 Cr MS/HSD, rest LPG). Happier with July situation.

Rough range: 5-digit Crore 'by good margin' (refusing precision). RUF stabilization hoped this quarter, full by Q4. Challenging engineering problem.

<₹9,700 Cr annual target; will cut if crisis persists. SPRs available to all; industry collaborated extensively.

Structural: East Coast inventory cost, no gas at Vizag, no delayed coker until HRRL. Once RUF stabilizes, margins will lead. Turn clock forward 1 year.

Not my brief to talk government. They've acknowledged the sacrifice; support in different forms. Very difficult to predict FY27 outlook.

Too variable—200 crude types in market. Saudi CP down ~$200/MT; LPG sourcing now diversified; spot dependency reduced but not gone.

Hard to model. Inventory moved needle 5-digit Crore. Vizag term contracts (Iraq/Saudi) blocked by Strait. Alternatives unavailable with same quality specs.

₹2,635 Cr is after inventory losses. HRRL: 60% Q1, ~50% Q2, 80-85% Q3, 100% Q4. HSD mix shifting from third-party to own/JV.

Short-term: crude sourcing optimization, Samriddhi. Long-term: HRRL ramp, RUF stabilization, digital tools, retail. HRRL can refinance high-cost rupee into ECB (1.5%+ savings).

Pulled best people to HRRL; commissioned 4-5 blocks in 3 weeks post-fire. SPR: ISPRL Board approval, market price + fee, very efficient process.

Debt similar (±₹1-2k Cr). Current 'top of mountain'—may peak or plateau. ATF: others have bigger problem; will follow up offline.

Consistently giving same disclosure level; will stick to it.

Management explicitly avoided guidance citing extreme volatility in crude ($80-$120 range). Implied quarterly approach: 'manage each quarter as it comes.'

Contingent on crude stabilization + RUF stabilization (Q3/Q4) + HRRL ramp (Q3/Q4). No numeric OPM/NPM target. Refining margins to improve once structural assets (HRRL delayed coker, Vizag RUF) fully operational.

Q1 spent ₹1,700 Cr (mostly turnarounds, essential maintenance). Will prioritize critical capex only; discretionary items (pump upgrades, infra) deferred. Target capex <₹9,700 Cr if crude remains elevated.

Q1 saw crude drop from ~$110 to ~$85 in matter of weeks, causing massive inventory write-downs. Current crude at $90-96; future range $80-120 makes margin forecasting impossible. Each $1 crude move ~₹200 Cr quarterly P&L impact at HPCL scale.

Vizag RUF (Residue Upgrade Facility) designed to run at 380 bar, 400°C with challenging catalyst management. Still not stable end-Q1; stabilization expected Q3/Q4 (2+ quarters late). Even Lummus (vendor) has not run unit this large. Failure to stabilize delays margin uplift; caused ₹2,635 Cr Vizag loss in Q1.

₹26,000 Cr marketing under-recovery in Q1 (₹20,000 Cr MS/HSD, ₹6,000 Cr LPG) not recovered from customers. Company sacrificed earnings to keep country supplied at controlled prices. Risk: if crude stays elevated and government doesn't pass through cost, subsidy burden continues; balance sheet deteriorates further.

Debt-to-equity jumped from 0.8 (end-FY26) to 1.5 (end-Q1) due to inventory buildup and operational losses. Management expects this to be 'peak' if crude stabilizes, but uncertainty is high. If crude re-spikes or losses continue, debt spiral could ensue. Interest cost increasing (though management says 'very tightly managed'). HRRL (JV) also carrying high-cost rupee debt; Srividya mentions plans to refinance into ECB for 1.5% savings.

Analyst Nitin Tiwari pointed out HPCL refining margins have consistently lagged IOC/BPCL over last 5 years (20+ quarters). Management attributes to structural factors (Vizag on East Coast with higher inventory costs, no natural gas at Vizag, delayed coker only at HRRL which is ramping). Risk: even post-HRRL/RUF, structural inefficiency may persist. Evidence: BPCL reported stronger refining margins in same Q1 FY27 despite similar market conditions.

HRRL was inaugurated July 4 after April CDU fire incident. At quarter-end running 60% CDU utilization. Target 50% Q2, 80-85% Q3, 100% Q4. Risk: greenfield complex refineries historically take longer to stabilize; management pulled best people from Vizag/Mumbai (150 staff stationed) to assist. If ramp slips or technical issues emerge, timeline delays and margin contributions push out.