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MRPL - Dismal performance - Kotak
Posted On : 2013-08-11 22:59:46( TIMEZONE : IST )
- MRPL has posted lower than expected results mainly on account of 1). Lower crude throughput & dispatches sequentially, 2). Forex loss of Rs.5.2 Bn, 3). Higher staff cost and 4). Higher interest cost.
- We believe these are teething pains and can continue for few more quarters. The phase III expansion plan is in the final stage of completion with all the three balance units namely PFCCU, DCU and CHT mechanically complete and commissioning activity started.
- Refinery expansion and modernization has achieved 99.02% (98.80% up till 15th May'13) physical progress till 15th July'13. PFCCU, DCU and CHT and power plant to fully commission by Oct'13.
- The Company expects that by Q4FY14, all the units will be operational and stabilize. We believe this will result in higher GRMs, going forward.
- In Q1FY14, MRPL has reported an average GRM of USD$ 2.94/bbls, up by 48.5% QoQ. GRMs are lower than expectation mainly due to lower complexity operation and forex loss. However, the Company has reported an inventory gain of Rs.1.5 Bn.
- In Q1FY14, MRPL reported lower crude throughput of 3.27 Mn MT, down by 20.6% QoQ due to plant normal maintenance, resulting in just 87.2% capacity utilization (lower by 22.7% QoQ) on expanded capacity.
- With expansion, the profitability is expected to improve on account of i). Higher refining capacity, ii). Higher utilization levels iii). Improved product mix, iv). Better refining margins v). Economies of scale, vi). Forward integration - Polypropylene plant and vii). Various tax benefits.
- At current price of Rs.30, stock is trading at 10.8x P/E and 5.5x EV/EBITDA multiples on FY14E earnings, respectively.
- The recent correction in the stock price discounts most of the negative performance, we opine. We recommend 'BUY' rating on MRPL. We value MRPL using EV/EBIDTA multiple of 6.0x and arrive at a revised price target of Rs.36/Share. For FY14E, we have tweaked our GRMs assumption on lower side to reflect our subdued outlook on the same and also lowered our crude throughput assumption on account of refinery maintenance shutdown for almost one month.
