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  • Stock recommendation: MRPL – BUY – TP Rs.106

    Publish date: August 13, 2018

    Result Update

    MRPL has reported significantly higher refining margins, beating benchmark Singapore refining margins, presumably due to higher inventory gains resulting from rise in crude oil price. However, lower crude throughput impacted the operating performance. In the medium to long term, the key factors to watch are GRMs, rupee movement against US dollar, and petroleum product demand. Further, investors are waiting for an announcement of swap ratio for merger of MRPL with HPCL.

    Key Highlights

    • MRPL reported lower than expected performance. MRPL reported a PAT of Rs. 3.6 bn in Q1FY19, lower 33% qoq due to lower sales volumes and higher forex losses. MRPL reported lower crude throughput of 3.85 mmt, -11% qoq and -3% yoy resulting in lower capacity utilization (103%).
    • It reported significantly higher GRMs of US$8.28/bbl in Q1FY19 as against US$4.74/bbl in Q1FY18 and US$8.28/bbl in Q4FY18. Comparably, Benchmark Singapore refining margin stood at US$5.4/bbl in Q1FY19.

    Valuation & Outlook

    • 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.
    • We expect MRPL to report an EPS of Rs.11.33/share in FY19E and an EPS of Rs.12.3 in FY20E supported by weaker INR/USD, higher GMRs but partly mitigated by lower crude throughput.
    • At current price, the stock is trading at 6.7x P/E and 1.1x P/B multiples on FY20E earnings. We maintain BUY on MRPL with a revised price target of Rs.106 (earlier Rs.132), valuing it at 5.5x FY20E EV/EBIDTA (earlier at 6.0x, discount to its peers). We expect stock to remain in focus on the news flow of merger with HPCL, we opine.


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