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MOSL: MRPL (Neutral)-Better than expected core GRM, but concerns remain

MRPL: Better than expected core GRM, but concerns remain

(MRPL IN, Mkt Cap USD1b, CMP INR42, TP INR46, 9% Upside, Neutral)

 

• Reported 3QFY20 GRM was higher than expected at USD3.19/bbl (v/s -USD0.63/bbl in 3QFY19). However, MRPL's GRMs have not always been good on a sustainable basis; at times it has been hit by water woes and at times, by technical issues.
• Also, SG refining margins have been under pressure due to large incremental supply glut amidst tepid global demand.
• Poor refining margins to continue for few more months. Dependence on the Nethravathi River until the desalination plant comes on stream in 2021 would also adversely impact performance; reiterate Neutral. 

Better-than-expected GRMs lead to lower losses

• MRPL reported an EBITDA gain of INR2.8b in 3QFY20 (v/s est. INR0.4b and loss of INR4.9b in 3QFY19), as reported GRM stood at USD3.19/bbl v/s loss of -USD0.63/bbl in 3QFY19. Forex gain during the quarter was INR0.2b v/s INR3.8b in 3QFY19. PBT stood at loss of INR0.45b and the company recognized deferred tax assets of INR83m for the quarter (totaling to INR5.7b in 9MFY20). At the PAT level, the company reported a loss of INR0.37b (v/s loss of INR2.6b in 3QFY19).
• For 9MFY20, reported EBITDA stood at a loss of INR4.3b v/s gain of INR12.6b in 9MFY19; PAT loss was INR11.1b v/s INR130m gain in 9MFY20.
• The company is in the process of evaluating the new reduced corporate tax rate (at 25.17%). It has realized deferred tax assets during 9MFY20 at the old tax rate (33.9%).