Mangalore Refinery and Petrochemical Ltd: Buy

CMP: Rs.48.95

At the loading of MRPL’s first International solid cargo of Sulphur at Jetty #3 NMPT.

Introduction: 

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MRPL, a schedule ‘A’ CPSE and a subsidiary of ONGC is a State of Art Grassroot Refinery located in a beautiful hilly terrain, north of Mangalore city, in Dakshin Kannada region. The Refinery has got a versatile design with high flexibility to process Crudes of various API and with high degree of Automation.

MRPL has a design capacity to process 15 million metric tons per annum and have 2 Hydrocrackers producing Premium Diesel (High Cetane). It also has 2 CCRs producing Unleaded Petrol of High Octane. MRPL produces special grade, ash less petcoke, ideal for cement kilns as the end product in their state of art Delayed Coker Unit (DCU) commissioned in April 2014. TheDCU converts low-value ‘short residue’ (bottoms) into high-value products viz Gasoil, Naphtha, LPG etc thereby increasing the distillate yield. Around 30% gets converted into special grade pet coke, which is in demand in the country.

Shareholding Pattern: 

The promoters hold 88.58%, while the general pubiic holds only
11.42%. Among the general catagory, the institutions hold 3.64%, FIIs hold 0.67% and DIIs hold 2.97% of the shares of the company. In fact the FIIs' holding has increased marginally both on Q-o-Q basis and sequentially. The non-institutions  hold only 7.78% shares of the company leaving very little shares in the open market for trade. 

Triggers: 

• In December, the Mangalore Refinery and Petrochemicals Ltd 
  
  (MRPL) entered into a MoU with STC Mauritius and Indian Oil Corp (IOC) to set up a petroleum terminal at Mauritius. The JV terminal would be constructed at an investment of around $130 million to facilitate re-export of petroleum products from Mauritius to Indian Ocean Islands and mainland Africa.
• The company has fully commissioned all units of phase-III, other than polypropylene unit, which will be fully functional by the March quarter of FY15. With that the phase-III expansion will be completed. 
• The completion of phase-III expansion of the refinery, single-point mooring system near New Mangalore Port, and facilities at OMPL (ONGC Mangalore Petrochemicals Ltd) are some of the recent milestones achieved by the company. Moreover, the first dispatch of OMPL product has gone from the company to respective customers in Q3FY15. MRPL is also one of the stakeholders in the OMPL project.  All these milestones would help improve the refining margin of the company. This will help bring better returns for stakeholders. 
• The company initially had plans of setting up of retail outlets. Accordingly, its BOD had approved the proposal for the establishment 122 outlets a few years ago. However, the company is not implementing, at the present moment, because it needs to revalidate that decision within its own team. 
• The commissioning of single-point mooring system near New Mangalore Port last year has helped the company to bring crude oil in bigger vessels.
• MRPL reported not so encouraging GRMs both in Q1FY15 and Q2FY15. This may come to end in the coming quarters as the phase III expansion completes and the plant stabilizes. Historically, MRPL has reported higher and more stable GRMs than the other PSU refineries. Now with most issues easing away and the secondary units getting commissioned by FY15E, the GRMs of MRPL is likely to bounce back in the coming months. 
• MRPL's Phase III is in the final stage of completion and is expected to be fully commissioned soon, as mentioned above. This refinery expansion & upgradation project at Mangalore includes: - (1) capacity addition of 3 MMTPA and upgradation project (2) polypropylene unit and (3) single point mooring (SPM) facility. 
• During Q1FY15, the company commissioned the delayed coker unit (DCU), that will crack the residual fuel oil into gasoil and petcoke, coker hydro treater unit (removes sulphur impurities from diesel) & two out of three SRU units. The PFCC (converts vacuum gasoil to propylene) & one train of SRU are expected has already been commissioned last year (CY14). Higher complexity on commissioning of Phase III project will lead to an increase in distillate yield from 76.5% to 80.1%, better capability to handle heavier & sourer crude and production of higher margin value-added products. 
• This month, MRPL announced that it moved its very first international solid cargo of Sulphur aboard MV Dusita Naree from NMPT Jetty #3. The loading of the 16500MT of ‘solid Sulphur’ headed to ZHENJIANG Port in China, commenced on 2nd Jan 2015 and was completed by 6th January 2015. The customer, M/s Mitsui& Co had bid online for the 16500MT of ‘solid Sulphur’ generated from the Phase I, II &III Sulphur Recovery Units of MRPL. Solid Sulphur is the by-product of the process by which desulphurization of auto-fuels is carried out to make these fuels environment-friendly EURO grade products. MRPL today manufactures EURO IV grade of petrol/diesel and is equipped for commercial production of EURO V. At a time of increasing concern at the potential for oversupply in the sulphur industry, particularly because of the increases in China’s sulphur capacity, the MRPL shipment is positive news for the sector and shows that China is still a key customer for the mineral.
• Overall, MRPL has lower policy leverage and lowest gearing on the balance sheet amongst PSU refineries. Moreover, the fuel loss which was a drag during the last few quarter may come down in the immediate future due to commissioning of new projects. This will lead to better GRMs.

Conclusion: Looking at the daily candle stick chart we find that the the stock has given a clear break-out above Rs.48.7. The scrip even closed above its 21D, SMA and EMA. 

This stock therefore, becomes a must buy for the investors at the current price of Rs.48.95. We can look forward for a target of Rs.55-62, in the coming days. The short term traders can keep a SL of Rs.45.