Buy MRPL; target of Rs 73: ICICIdirect

ICICIdirect.com`s research report on MRPL“MRPL declared its Q1FY15 results with revenues at Rs 15743.6 crore (up 3.1% YoY) against our estimate of Rs 15058.8 crore and PAT came in at Rs -36.1 crore. The revenues were marginally above our estimates on account of marginally higher-than-expected volumes of 3.2 MMT against our estimates of 3.1 MMT. EBITDA loss at Rs 147.5 crore came below our estimate of Rs 343.2 crore due to lower GRMs of US$ 0.7/bbl against our estimates of US$ 3.6/bbl due to increase fuel and loss on part commissioning of refinery expansion. This subsequently lead to lower PAT of Rs -36.1 crore.” “MRPL reported GRMs of $ 0.7/bbl in Q1FY15, which is lower than our estimate of $ 3.6/bbl. This was mainly due to increased fuel and loss in scenario of part commissioning of refinery expansion project. This loss may continue for the coming quarters till the phase III expansion completes and stabilise. Historically, MRPL has reported higher and more stable GRMs than the other PSU refineries. FY14/Q1FY15 was a difficult for the company as the weak macro environment and reduced supply of Iranian crude had an adverse impact on the GRMs of MRPL. However, with most issues easing away and most of the secondary units getting commissioned by FY15E, we believe that the GRMs of MRPL will bounce back in the coming years. We have estimated GRMs of US$ 3.1 per barrel & US$ 5.7 per barrel for FY15E & FY16E, respectively.” “MRPL Phase III is in the final stage of completion and has achieved an overall progress of 99.74% as on July 15, 2014. This refinery expansion & upgradation project at Mangalore includes: - (1) capacity addition of 3 MMTPA and upgradation project (2) polypropylene unit and (3) single point mooring (SPM) facility. During Q1FY15, the company commissioned the delayed coker unit (DCU), that will crack the residual fuel oil into gasoil and petcoke, coker hydro treater unit (removes sulphur impurities from diesel) & two out of three SRU units. The PFCC (converts vacuum gasoil to propylene) & one train of SRU are expected to be commissioned in August 2014 while the physical progress of Polypropylene unit is 96.3% & is expected to be commissioned by October 2014 from earlier expectation of July 2014. Higher complexity on commissioning of Phase III project will lead to an increase in distillate yield from 76.5% to 80.1%, better capability to handle heavier & sourer crude and production of higher margin value-added products. We have changed depreciation for the coming year on change in accounting policy.” “Overall, MRPL has lower policy leverage and lowest gearing on the balance sheet amongst PSU refineries. However, with the estimate of fuel loss due to commissioning of new projects, the GRMs of the company may continue to be lower in the coming quarters till the expansion is complete. We value the stock at 5.5x FY16E EV/EBITDA multiple to arrive at a target price of Rs 73,” says ICICIdirect.com research report.

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