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ICICI Securities
Mangalore Refinery (Sell)
CMP: ₹32.5
Target: ₹25
MRPL reported a weak set of Q4FY20 numbers on the profitability front. Operating revenue increased 4.8 per cent q-o-q to ₹17,545.1 crore while oil throughput declined 6.6 per cent q-o-q to 3.8 MMT. Reported GRMs disappointed and came in at -$4.5/bbl, impacted by inventory losses. Subsequently, EBITDA loss was at ₹1,922.1 crore versus EBITDA profit of ₹299.7 crore in Q3FY20, also impacted by ₹508.9-crore forex loss. The company reported net loss at ₹1,596.4 crore vs ₹36.6 crore loss in Q3FY20.
Valuation & outlook: The nationwide lockdown due to spread of Covid-19 has reduced capacity utilisation of the company and will impact its near term performance. On the business front, MRPL plans to augment its capacity to 18 mmtpa from 15 mmtpa over the next few years. However, the last expansion project to increase complexity as well as capacity did not achieve desired results. Also, weak global product spreads will affect refining margins thereby affecting profitability. MRPL’s investment in OMPL has also not paid off. It continues to be a drag at the consolidated level.
We downgrade the stock from ‘reduce’ to ‘sell’ with a target price of ₹25/share (about 0.5x FY22E BV).
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