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MOSL: MRPL (Neutral)-Strong 1QFY23, but consistency is key

• MRPL reported a strong beat on EBITDA and PAT (due to a higher reported GRM of USD24.4/bbl). Refinery throughput was in line at 4.3mmt (up 40% YoY), implying a utilization rate of 114%.
• The amalgamation of MRPL with OMPL from 1^st Apr’22 led to strong synergies in the production of Para-xylene, Benzene, and other products. This is a bold move, but profitability remains a concern in the long run.
• Singapore GRM improved to USD21/bbl QoQ in 1QFY23, led by an improvement in gasoline, gasoil, and ATF cracks. This resulted in a surge in reported GRM to USD24.4/bbl (up ~4.5x YoY). Amid various other moving parts, standalone refiners like MRPL and MRL are likely to benefit the most, although a sustained good performance has been a question mark in the past.
• While we forecast a core GRM of USD9.8/USD5.5 per bbl for MRPL in FY23/FY24, we decreased our 2QFY23 GRM to USD7/bbl (v/s USD14/bbl earlier) and tweaked our FY23/FY24 EBITDA estimate by +18%/-4% due to OMPL’s amalgamation with MRPL from FY23. This is after the contribution of OMPL to EBITDA in the new amalgamated entity.
• Multiple initiatives are in place to improve the contribution from marketing margin in both the domestic and export markets, along with the B2B segment. Considering the above factors, we maintain our Neutral rating on the stock.

 

Strong beat on EBITDA, PAT beat due to higher GRMs

• MRPL reported an EBITDA of INR47.1b in 1QFY23, 20% higher than our estimate (up ~12x YoY and 60% QoQ). PAT stood at INR27b, ahead of our estimate by 7%, but fell 10% QoQ due to a tax write back in 4QFY22.
• Refinery throughput stood at 4.29MMT (flat QoQ), with utilization at 114% v/s 117% in 4QFY22.
• Commissioning of new HSD tanks and new HSD product evacuation facilities have helped MRPL to achieve its highest ever HSD dispatch in May’22. MRPL has commissioned four new retail outlets in 1QFY23, taking its total retail outlet count to 36.

 

Valuation and view – maintain Neutral

• MRPL completed its expansion/modernization capex of ~INR150b (Phase III) over FY12-15. This included a polypropylene plant as well as Single Point Mooring (SPM) to facilitate anchoring of Very Large Crude Carriers (VLCCs).
• Despite these expansions and modernization, MRPL failed to sustainably improve its performance. We have mapped reasons for its poor performance since 1QFY12 in our . Since 1QFY13, the refinery has suffered at times due to the inadequate availability of water during the summer season. With operationalization of the desalination plant in late CY21, the problem seems to have largely been taken care of.
• While we don’t expect any performance disruptions due to inadequate water supply, it remains to be seen if MRPL can take advantage of the current strength in GRMs. The stock trades at 8x FY24E EV/EBITDA. Valuing the entity at 8x FY24E EBITDA of INR42b, we arrive at a valuation of INR68/share. We maintain our Neutral on the stock.