PL Stock Report: Mangalore Refinery & Petrochemicals (MRPL IN) - Q2FY24 Result Update – Strong refining margins drive earnings - HOLD

Mangalore Refinery & Petrochemicals (MRPL IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs104 | TP: Rs106

Q2FY24 Result Update – Strong refining margins drive earnings

Quick Pointers:

♦ Refining throughput at 3.2mmt was down 19% YoY, due to partial shutdown.

♦ Concerns persist on sustainability of strong GRMs, amidst demand concerns.

Mangalore Refinery & Petrochemicals (MRPL) reported lower than estimated EBITDA at Rs 21.5 bn (up 4% QoQ, PLe: Rs29.8 bn). PAT came in at Rs 10.6 bn (up 5% QoQ, PLe: Rs17.9 bn) and GRMs came in above estimates at US$17.1/bbl, but opex increased due to the shutdown. On the marketing front, MRPL plans to reach target of 1 mmt retail sales in 3-5 years with ~500 retail outlets. We anticipate GRM of US$10/6/6/bbl for FY24/25/26E, factoring in softening of Singapore GRMs in the near term. Maintain ‘Hold’ rating with TP of Rs 106 (earlier Rs94) based on 5x FY26 EV/EBITDA.

♦ Operating performance improves YoY: EBITDA/PAT at Rs 21.5bn/Rs10.6bn were up 4%/5% QoQ. Opex increased due to maintenance shutdown and lower throughput. EBITDA for Q2FY24 grew significantly vs EBITDA loss of Rs 15.3 bn in Q2FY23. Similarly, PAT improved substantially against a net loss of Rs 17.9bn in Q2FY23. Operating profit for H1FY24 was Rs 42.1bn, up 7.8% YoY and PAT came in at Rs 20.7bn, up 125.6% YoY.

♦ Quarterly GRMs come in strong: Refining throughput for the quarter was 3.2 mmt, down 14% QoQ due to a maintenance shutdown in one of its phases. The company reported GRM of US$17.1/bbl, up by US$7.3/bbl QoQ, and higher than our estimate of US$15.1/bbl. However, core GRM came in at US$9.9/bbl with an inventory gain of US$7.22/bbl. Inventory gain for H1FY24 was US$2.1/bbl. Due to shutdown, fuel and loss was at 11.28% during the quarter. In the current quarter, Singapore GRMs have softened amid decline in product cracks due to demand concerns. Owing to this reason, we factor in a GRM of US$6/bbl for FY25/26E.

♦ Conference Call Highlights: 1) Opex has gone up due to shutdown and reduction in throughput. 2) Russian crude forms 35-40% in basket for India; and discount has reduced from Q1FY24.3) No further planned shutdown expected going forward; in FY25, phase-2 would see some shutdown; although throughput despite shutdown would be above nameplate capacity. 4) Capex of Rs10bn in FY24; FY25 also broadly to be similar. 5) Marketing terminal, bitumen project, other smaller projects, retail outlets are some of the areas the company is working on. 6) Target 1mmt of retail sales in 3-5yrs with ~500 retail outlets; currently with 75 ROs. 7) LNG is being taken as a feed and also as a fuel, as and when economics is favourable. 8)OMPL is being run in reformate mode as PX profitability is poor. 9)Rs30bn of accumulated losses are yet to be utilized. 10)80% of the ATF produced is exported.

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