Buy MRPL; target of Rs 109: LKP

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Buy MRPL; target of Rs 109: LKP

LKP is bullish on Mangalore Refinery and Petrochemicals (MRPL) and has recommended buy rating on the stock with a target of Rs 109 in its July 28, 2011 research report.

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LKP is bullish on Mangalore Refinery and Petrochemicals (MRPL) and has recommended buy rating on the stock with a target of Rs 109 in its July 28, 2011 research report.

"Mangalore Refinery and Petrochemicals (MRPL) is working with Iran to resolve the issues relating to payment for crude supplies. MRPL has also finalized to buy crude oil from Kuwait in 2011, which is a new source of supply. The company is also in discussion with ADNOC & Saudi Aramco for supply of additional volume of crude oil. It has also been decided to finalize the term contracts for crude oil import for the year FY13 well in advance by Sept 2011, in order to have more suppliers. It is also envisaged to import crude oil in VLCC from far flung areas and discharge through lightrage till

SPM becomes operational. MRPL has been given in-principle agreement to off-take about 110,000 bpd from Carabobo, supply from which is expected around FY17. MRPL plans to carry out further downstream integration by setting up retail network chain outside India in the growing markets of Africa."

"The company has already submitted an EoI to the Govt. of Mauritius for setting up 150,000 MT oil terminal in Mauritius, which would be leveraged for exports into African countries. The company also plans to set up JVs for storage of products at strategic locations abroad coupled with long term supply arrangements with marketing companies operating in Africa & Asia."

Going forward, excellent product slate of the expanded refinery, due to reduction in fuel oil and introduction of polypropylene, is expected to result in GRM jumping by ~$3.5/bbl during FY12-13. Realization for PP is currently ~$1500/ton, which is almost double that of other refined products. We estimate GRM of $5.8/bbl and $9.5/bbl in FY12 and FY13 respectively. Commissioning of SPM is expected to result in lower transportation costs and corresponding increase in GRM. GRM will be even significantly higher if the company is granted the various tax incentives for its expanded refinery. We forecast net sales of Rs375,107.6 mn and Rs419,488.2 mn in FY12 and FY13 respectively. We expect EBITDA to jump from Rs18,939 mn in FY12 to Rs38,164.5 mn in FY13. We estimate PAT of Rs8,583.5 mn and Rs16,687.1 mn in FY12 and FY13 respectively. We expect EPS to leap from Rs4.9 in FY12 to Rs9.5 in FY13."

"We value MRPL using EV/EBITDA valuation and maintain BUY with a FY12E target price of Rs109, which translates to upside of 36.3%. We have used EV/EBITDA multiple of 6.25x on FY13E EBITDA to arrive at our price target," says LKP research report.

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