MRPL's Q1FY19 results (Outperformer) - Higher forex loss offsets inventory benefit
Q1FY19 result highlights
- Recurring PAT of Rs3.8bn for the quarter up 62% yoy, below IDFCe Rs4.4bn. EBITDA of Rs8.1bn (+40% yoy, IDFCe Rs8.8bn).
- Reported earnings of Rs3.6bn below IDFCe Rs4.4bn, driven by higher opex which offsets higher GRMs vs estimates.
- Earnings impacted by a sharp increase in *other opex* to Rs8.5bn (+75% yoy), sharply ahead of estimates of Rs3.5bn driven by higher forex loss of Rs3.9bn vs gains of Rs315mn in Q1FY18 and estimates of Rs1bn loss
- PPU unit gradually stabilising post the problems with the delayed coker unit in FY18, expected to run at 100% in FY19E.
- Inventory gains of US$3.5/bbl (IDFCe US$1.6/bbl). Resultant, core GRMs of US$4.8/bbl was below IDFCe US$5.8/bbl.
- Refining thruput of 3.85mt for the quarter implies 103% utilisation. We note that distillate yield >76.3% over Q1, and PPU volumes are at >105kt run rate for the quarter. However Fuel & Loss (F&L) at 11% was higher than estimates and management guidance of <10% over FY19
- Depreciation costs of Rs1.7bn (+4% yoy) and interest costs of Rs1.1bn (+3%) were broadly in line.
Key positives: Improving distillate yields, utilisation remains >100%
Key negatives: PPU unit yet to deliver full GRMs benefit, high F&L.
Impact on financials: FY19E EPS reduced 8.5% on lower PPU estimates. TP unchanged at 130.
Valuations & view
MRPL remains on a structural growth path, with performance of the refinery to reflect the improved configuration and higher capacity which is complimented by an improved crude sourcing slate over FY19-20E. With the improvement from the PPU unit yet to kick in fully (utilization of the PPU plant estimated @90% for FY19) and the intent to reduce F&L below 10% over F19E, we see further uptick in GRMs over FY18-20E. Coupled with the expected turn to profitability for subsidiary OMPL, profitability for MRPL should continue to expand over the next 2 years. Valuations of just 5x FY20E EPS/3.5x EV/EBITDA underplay the strong growth in profitability and a potential dividend yield of 4% (30% pay-out on FY19E standalone EPS implies Rs4/sh pay-out, FY18 pay-out at ~24%). Reiterate outperformer.
Mangalore Refinery and Petrochemicals Limited is a holding company .The Company is engaged in the business of refinery and manufacturing of refined petroleum products. Its segments include Domestic Sale and Export Sale. The Company is involved in the production of liquid or gaseous fuels, illuminating oils, lubricating oils or greases or other products from crude petroleum, and manufacture of other petroleum products, such as bitumen. Its products include pet coke, liquefied petroleum gas, fuel gas, mixed xylene, high speed diesel (HSD), vacuum gas oil (VGO) and automatic transmission fluid (ATF). It operates retail outlets under the HiQ brand. It has design capacity to process approximately 15 million metric tons per annum and over two hydrocrackers producing diesel. It has over two catalytic reformers producing unleaded petrol of high octane. It offers petroleum and petrochemical products to consumers in various industries, such as mining, power, agriculture, fertilizers and paint.
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