Asian benchmark Singapore Gross Refining Margins averaged around $17.8 per barrel in April 2022 as against $8.1 per barrel in Q4FY22. It even touched the $20 per barrel mark, the highest level since 2012, on the back of rising demand for refined products globally.
This is expected to benefit Mangalore Refinery and Petrochemicals Ltd (MRPL), which processes crude into refined products.
On April 19, the scrip of MRPL on the BSE opened at Rs 52.80 and closed at Rs 57.70, up by 9.07 percent, over the previous day's close. It even touched a 52-week high of Rs 63.45.
(GRM is the amount that refiners earn from turning every barrel of crude oil into refined fuel products.)
MRPL Managing Director M Venkatesh spoke with CNBC-TV18 on the buzz in the stock on account of rising Singapore GRMs, shared his views on the reasons for such a big spike and how it is going to benefit their refinery.
Venkatesh was optimistic that they would be able to capitalise on the strengthened Singapore GRMs even as crude supply issues persist. Also, he agreed with brokerage firm Motilal Oswal's estimates that every $1/barrel change in Singapore GRMs results in 25 percent increase in EBITDA for its refinery.
"Singapore GRMs at all-time high means a lot for a standalone refinery like us. We need to capture the revenue available in the market. A dollar per barrel GRM means Rs 700-800 crore revenue on a peak capacity basis. This nearly amounts to 20-25 percent of our revenue cap," he stated.
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Listing out reasons for high margins for their refinery, Venkatesh said strong demand and tight supply have supported their margins and further said the easing of restrictions globally led to a boost in demand for ATF fuel.
"Main reason is product demand picking up post-Covid and supplies becoming tight. Air travel picking up is also a positive sign for us," he explained commenting over the all-time high Singapore GRMs.
When asked to react to the company's outlook for FY23 and if the hike in GRMs could drastically take their numbers for the next year very high, a highly optimistic Venkatesh said, "As long as the market is holding, we expect high capacity operation beyond our installed capacity and capture the revenues. We should be seeing very high operating margins."
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To a question on whether increase in crude prices in the range of 25 percent in the last quarter will also increase their inventory gains, he said, "Rising prices will always generate cash revenues for us. At the same time, fall in prices has a detrimental effect. Rising prices over a two-three horizon is always beneficial."
Responding to a question on the company facing a huge net debt and taking about measures required to reduce the debt he said, "Our standalone debt is around Rs 14,000 crore at the end of December 2021. Going forward we look at reducing debt by generating cash profits."
When asked to speak on fresh capex plans and if this would result in increase in debt for them, he said, "We have just completed our expansion product quite successfully. The cash flows have completed the capex bookings. I don't look at more capex than what is basically required to maintain the refinery operation."
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He estimated their debt to fall by Rs 2000 to Rs 3000 crore going forward. He supported his statement saying they would be able to pare down the debt if Singapore GRMs hold on to $10-$15/barrel.
"If the Singapore GRMs are holding in the range of $10-$15/barrel, I would see a debt reduction in the range of Rs 2000 to Rs 3000 crore going forward," Venkatesh said, specifically answering to a question on how much of a debt it would reduce.
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