Company Update: Mangalore Refinery and Petrochemicals Ltd (MRPL) - BUY - TP Rs.155 - Kotak

- Singapore refining margins have improved 35.7% qoq (till date) to $ 7.3/bbls led by rise in international product prices due to two hurricane Irma in USA. We expect MRPL's financial performance to improve on account of strong margins, improvement in operational performance in the medium term and ongoing improvement in financial metrics. Further, if crude remains at elevated levels by quarter end then we can expect inventory gains in Q2FY18.

- Going ahead, we expect MRPL's profitability to improve on account of i). Improved product mix, ii). Better refining margins iii). Economies of scale, iv). Forward integration - Polypropylene plant and v). Various tax benefits.

- The expansion of capacity to 15 mmtpa and increase in complexity to 10 NCI (from 5.5 earlier) implies that distillate yield (including propylene) will expand, going forward. MRPL has lined up capex plans for two major projects 1). Up-gradation of refinery to meet BS-VI norms by 2020, which recently received environmental clearance and 2). Further expansion of its capacity from 15 mmtpa to 25 mmtpa.

- We expect structural change in operating and financial metrics. At current price, the stock is trading at 8.4x P/E and 2.0x P/B multiples on FY19E earnings. MRPL processed highest total crude throughput in FY17 at 16.3 mmtpa led by completion of phase III capacity. Post expansion, MRPL is one of the best refineries in India which can increase distillate yield, capability to handle heavier and sourer crude and production of higher margin value-added products. This makes us believe that going forward GRMs are expected to remain healthy. We expect throughput of 17 mmtpa and 17.3 mmtpa for FY18E & FY19E respectively. We maintain BUY on MRPL with an unchanged price target of Rs.155, valuing it at 6x FY19E EV/EBIDTA as against industry average of 7.5x.

Shares of MANGALORE REFINERY & PETROCHEMICALS LTD. was last trading in BSE at Rs.135.45 as compared to the previous close of Rs. 134.95. The total number of shares traded during the day was 88189 in over 685 trades.

The stock hit an intraday high of Rs. 136.65 and intraday low of 133.85. The net turnover during the day was Rs. 11927995.

Source : Equity Bulls

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