Buy MRPL; target of Rs 74: LKP

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Buy MRPL; target of Rs 74: LKP

LKP is bullish on MRPL and has recommended buy rating on the stock with a target price of Rs 74 in its January 30, 2012 research report.

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LKP is bullish on MRPL and has recommended buy rating on the stock with a target price of Rs 74 in its January 30, 2012 research report.

"Mangalore Refinery and Petrochemicals (MRPL)'s core GRM disappointed by coming in at USD 1.36/bbl in Q3 FY12 vs. USD 4.84/bbl q-o-q & USD 1.86/bbl y-o-y; however, inventory gain of USD 6/bbl compensated for forex loss of USD 3.65/bbl during the quarter. Core GRM dropped from USD 4.84/bbl in Q2 FY12 to USD 1.36/bbl in Q3 FY12, which exceeded the fall in Singapore complex GRMs from USD 9.1/bbl to USD 7.9/bbl in the same period. Persistent depreciation of the rupee saw forex losses increasing from (USD 3.15/bbl) to (USD 3.65/bbl) in the same period. However, inventory gain at USD 6/bbl was a positive surprise. Thus, gross GRM jumped from USD 1.66/bbl in Q2 FY12 to USD 3.75/bbl in Q3 FY12. Throughput for Q3 FY12 was 3.04 MMT compared to 3.08 MMT in Q2 FY12 & 3.49 MMT in Q3 FY11. This was due to revamp activities during the quarter for the CDU/VDU I & Hydrocracker I units. Following the completion of the revamp jobs, the plants have been declared mechanically completed and the units are back on stream."

"Net sales increased 25.6% y-o-y to Rs 129,668.4 mn mainly on account of higher product prices, led by diesel & gasoline. Sales was also up 11.3% q-o-q due to shutdown of the CDU/VDU during Sept 2011. Exports increased to 43.5% of sales in Q3 FY12 as against 34.5% in Q3 FY11, led by fuel oil which is getting replaced by natural gas in the domestic market. Gross margin improved to 3.9% in Q3 FY12 as against 3.4% in Q2 FY12. Forex loss increased further to (Rs 4,398.3 mn) from (Rs 3,519.7 mn) q-o-q whereas the company recorded an inventory gain of Rs 7,280 mn vs. loss of Rs 30 mn during the same period. While depreciation increased to Rs 1,173.7 mn, interest expense dropped to Rs 423.1 mn."

"As a result, reported net profit for Q3 FY12 shot up 354.8% q-o-q to Rs 1,097.5 mn with EPS for the quarter being Rs 0.6. However, net profit was down 65% y-o-y owing to heavy forex losses incurred. We value MRPL using a target EV/EBITDA multiple of 5x on FY13E EBITDA and reiterate BUY with a target price of Rs 74, which translates to upside of ~25%," says LKP research report.

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