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Target: ₹66
CMP:₹55
The 15-mtpa Mangalore Refinery and Petrochemicals (MRPL) is a play on refining and petrochemichal in South India, promoted by ONGC and HPC. The high refining-margin context and robust demand would support earnings, creating shareholder wealth with lower debt. The Nelson complexity is about 10.6, but operating efficiency has been impacted on acquiring OMP, given the weak petrochem environment.
Falling crude prices and discounted crude sourcing have reduced working capital and eased debt. 6.
MRP’s Q3 FY23 gross refining margin (GRM) was $3.88/bbl ($4.46 the prior quarter, $9.29 a year ago) while the Arab heavy-light difference was $3.75/bbl. The core GRM was $7.76/bbl ($1.04 the previous quarter, $8.37 a year ago) vs the benchmark $6.3. .
There was an implication of SAED for products exported at ₹529 crore ($1.9/bbl) vs ₹1,030 crore ($4.34/bbl) in Q2 FY23. Export duty, which has been reduced in the refinery transfer price, per our calculations could amount to ₹1,520 crore ($5.49/bbl). This means that the core GRM could be $15.3/bbl. The $2.1/bbl opex and ₹250-crore forex loss cut into profitability. A $1/bbl change in the GRM changes the EBITDA by ₹1,850 crore and EPS by ₹7.1.
Risks: Lower GRM environment, change in crude prices and inventory losses, adverse government policy – subsidy-sharing.
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