MRPL shares surge 18%, monthly gain crosses 60% so far in Feb 

MRPL reported net profit of Rs310 crore in Q3 versus Rs180 crore estimated against a loss of Rs200 crore YoY and Rs1050 crore QoQ.

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Shares of Mangalore Refinery & Petrochemicals Ltd (MRPL) rallied 18 percent o February 19, extending monthly gains to nearly 60 percent in February and a total of 33 percent in January. Year-to-date, it has surged 113 percent with increased volumes.

At 1.45pm, the stock was trading at Rs 283.40 on BSE, up 18 percent from its previous close while India’s benchmark Sensex gained 0.47 percent to 72767 points.

The stock surged despite downgrades from several analysts after its Q3 earnings performance. Motilal Oswal Securities has downgraded the stock to sell and cut its target price of Rs 135 a share, down 23 percent from earlier. Yes Securities lowered rating to neutral from earlier Add and revised target price of Rs 173 a share from Rs 151 a share. Elara Capital has downgraded the stock to sell and cut its target price to Rs 150 from Rs 175 a share.

MRPL reported a net profit of Rs 310 crore in Q3 versus Rs 180 crore estimated against a loss of Rs 200 crore on-year and Rs 1,050 crore on-quarter. Year-on-year earnings growth was on account of higher GRM at $5.0 a barrel versus $3.9 a barrel in Q2FY24. Crude throughput was 4.4 million tonnes, down 1 percent YoY, but up 38 percent QoQ, due to maintenance shutdown in Q2FY24.

The on-quarter GRM decline was on account of a fall in key product cracks such as gasoil and gasoline cracks as well as crude inventory loss. YoY, gasoline cracks at $8 per barrel were trending higher. MRPL has also reduced long-term borrowings by Rs 3,200 crore in 9MFY24.

“Based on reported H1FY24 financials, we raise FY24E EPS to Rs26.4 from Rs25.2 on higher GRM at $10.0/bbl from $9.7/bbl. We expect global refining supply to further tighten due to limited capacity addition. So, we raised FY25E/26E EPS to Rs20.9/19.8 from Rs13.9/15.3. But the stock price has factored in $8.2/bbl long-term GRM versus $4.2/bbl 10-year average before Covid and prior Russia-Ukraine war, despite assuming higher one-year forward EV/EBITDA of 5.5x (from 5.0x) for de-leveraging benefits”, said Elara Capital in its January report.

MRPL falls short of analysts’ EBITDA and PAT estimates in 3QFY24, attributed to a lower-than-expected GRM of $5/bbl. Refining throughput meets estimates at 4.4mmt. Phase 3 units and Hydrocracker Unit 1 restart safely after a 45-day mandatory maintenance shutdown in 2QFY24. Opex moderates in the quarter following adverse impacts in 2Q due to the shutdown and reduced throughput. MRPL achieved its highest-ever monthly gross crude input of 1558tmt/month in Dec ’23. Additionally, the company procedures and processes 20tmt of High Sulphur Fuel Oil for the first time in the quarter.

The company began advertising for 1,800 retail outlets, set to complete soon, with plans for an additional 500 outlets in the next three years. Phase 1 focuses on South India, followed by expansion into West and North India in Phase II. The stock currently trades at an FY25E P/BV of 2.2x, exceeding its long-term average of 1.3x. The expected dividend yield is a modest 2% in FY24 at the current price. The GRM assumption of $8/bbl from 4QFY24 onwards is comparatively higher than the company’s historical performance, analysts said.

Recently, MRPL signed a 5-year gas supply deal with BPCL. BPCL to supply 0.43 MMSCMD of RLNG to MRPL’s Mangaluru facility from Cochin terminal. The gas will play a key role in refining crude oil, optimizing fuel, and reducing emissions. MRPL aims to use RLNG for hydrogen production, power generation, and steam. This shift to natural gas will help lower emissions and carbon footprint by replacing naphtha, diesel, and fuel oil.

Along with this, ONGC plans to invest Rs 1 lakh crore by 2030 for petrochemical capacity expansion. Aimed at making India a key petrochemical hub, the project involves MRPL and OPaL. By 2030, MRPL and OPaL’s combined capacity is set to double to 8 million metric tonnes per annum. Two mega projects on the east and west coast will be established, directly using crude for chemical production. ONGC can also utilize domestically produced crude as feedstock for its crude-to-chemical facility, according to news reports.

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