MOSL: MRPL (Neutral)-Cutting target price to factor in OMPL’s muted performance
MRPL: Cutting target price to factor in OMPL’s muted performance; Maintain Neutral
(MRPL IN, Mkt Cap USD2.2b, CMP INR85, TP INR88, 4% Upside, Neutral)
ONGC Mangalore Petrochemicals Limited (OMPL) is a 51% subsidiary of MRPL. It has a capacity of ~0.9mmtpa for paraxylene and 0.27mmtpa for benzene. Its performance has been muted compared with our earlier assumptions. We realign our expectations and revise our target price for MRPL accordingly.
- Poor gross margin: Despite the strong utilization of 88% mentioned in OMPL’s annual report, the actual gross margin was INR7.8b. EBITDA was INR2.1b, not even sufficient to fund the interest cost of INR4.7b. Placement cost of products combined with premium for rich/aromatic naphtha results in poor gross margin. We expect gross margin to expand to INR9.4b in FY20.
- High interest cost: Interest cost was 7.4% in FY18. Net debt stands at INR61.6b. We expect the company to report losses through FY20. As a result, we expect net debt to rise to INR76.7b by FY20, unless further restructuring of debt is carried out.
- Adjusting valuations: Given its continued losses, we now expect OMPL to take away from ONGC’s valuation rather than add to it. We had earlier built in an INR17/share addition to ONGC’s valuation. We now build in an INR18/share deduction.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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