MRPL's Q2FY19 results (Downgrade to Neutral) - Operational woes persist
Q2FY19 highlights
- MRPL recurring EBITDA of Rs1.4bn and adj loss of Rs1bn were well below IDFCe EBITDA/PAT of Rs7.2bn/3.3bn and also well below Q2FY18 EBITDA/PAT of Rs9/4.96bn. Multiple reasons impacted the results; i) shutdown of coker unit for 12 days, ii) lower PPU evacuation, iii) lower product spreads and iv) higher F&L costs which also coincided with higher crude prices
- Driven by the above reasons and weak product spreads, Core GRMs for MRPL were at US$2.3/bbl, lowest since Q2FY15 (IDFCe USD$5/bbl). Even with inventory gain of US$2.1/bbl (est US$1.9/bbl) *reported GRMs of US$4.41/bbl were also the lowest since Q2FY16.
- Profitability was further impacted by forex loss of Rs4bn vs only Rs0.7bn loss in Q2FY18 and Rs2bn est.
- Resultant, Gross margins of Rs10bn and EBITDA of Rs1.4bn were sharply below estimates of Rs13bn/Rs7bn*, even as refining thruput of 3.8mt was in line with estimates
Key positives: Refining thruput implies >100% utilisation
Key negatives: Weak GRMs, forex loss and continued issues with secondary processing units
Impact on financials: Cutting FY19/20E EPS by 17/28% to factor sharply lower margin assumptions and marginally lower thruput. TP cut to Rs90.
Valuations & view: Cut to Neutral
MRPL has seen Quarterly performance become exceedingly volatile, with technical issues at secondary units, forex and crude prices making earnings extremely unpredictable. Additionally, while management is guiding to much more stable operations at its refinery over H2FY19e, the refining margin environment itself has turned bearish in recent months, with the lower crude prices to contribute to inventory loss also in Q3, even though in the longer term, refiners would benefit via lower F&L costs. Taking cognisance of the weaker H1 (vs Est) and a muted environment for Q3-Q4 as well, we have sharply cut our GRM assumptions and lowered target EV/E multiple as well, underpinning our 31% cut to price target and a downgrade to Neutral.
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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