MRPL: Complexity gains

India Infoline News Service | Mumbai |

MRPL is currently implementing three major projects at its refinery to improve the profitability of the refinery complex.

CMP Rs41.8, Target Rs51.0, Upside 22.1%

Mangalore Refinery and Petrochemicals Ltd (MRPL), a 71% subsidiary of ONGC, is all set to complete its long drawn US$2.4bn capacity expansion program at its refinery. Post completion the refinery 1) will have a nameplate capacity of 15 million tons per annum (mtpa) as compared to 12mtpa earlier, 2) the nelson complexity index of the refinery will increase from 6 to 9, 3) jump in distillate yield of the refinery, 4) will have capability to produce value added products from the heavier ends. These will translate into a GRM improvement of US$3-4/bbl over a period of two years. While the outlook for GRMs at the global level is muted, MRPL will post a relatively better growth in earnings on the back of higher margins from expanded capacities. At FY15E EV/EBIDTA of 4.4x, the stock is attractively valued when compared with regional peers. We initiate coverage with a BUY rating and a 9-month price target of Rs51.


MRPL GRMs set to rise....

With the commencement of operations at the secondary processing units, the complexity of MRPL's refinery will increase from 6 to 9. This will enable to improve the crude diet of the refinery whereby it will process higher amounts of sour and heavier crude oil varieties which are cheaper when compared with the sweet and lighter varieties. Additionally, the refinery will produce higher quantities of light products which command better spreads. Commencement of single point mooring will lead to freight cost reduction. Cumulatively, these will add US$3-4/bbl to GRMs over the next couple of years. Furthermore, these projects enjoy tax benefits which will flow down to the bottomline.


... in a weak global environment

Global slowdown has impacted demand for petroleum products leading to weak product spreads. Demand recovery is expected to be slow and gradual. On the other hand, net refining capacity additions (gross additions – closures) are expected to keep pace with demand growth in the next couple of years. This, we believe, will keep GRMs at current levels for most part of CY14.


Financial summary
Y/e 31 Mar (Rs m)
FY13
FY14E
FY15E
FY16E
Revenues
657,170
737,693
816,120
845,072
yoy growth (%)
22.2
12.3
10.6
3.5
Operating profit
3,211
17,502
28,789
33,075
OPM (%)
0.5
2.4
3.5
3.9
Reported PAT
(8,014)
4,683
13,080
16,330
yoy growth (%)
-
-
179.3
24.8
EPS (Rs)
(4.6)
2.7
7.5
9.3
P/E (x)
-
15.6
5.6
4.5
Price/Book (x)
1.1
1.1
0.9
0.8
EV/EBITDA (x)
39.6
8.2
4.4
3.3
Debt/Equity (x)
1.1
1.1
0.8
0.6
RoE (%)
(11.7)
7.1
18.0
19.1
RoCE (%)
(1.4)
6.8
14.0
16.5
 Source: Company, India Infoline Research
 

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