Mangalore Refineries and Perrochemicals Ltd (MRPL): Buy

CMP: Rs.48.40

Short Term Targets: Rs.61/66.

Book Value: Rs.61.21

Dividend Yield: 2.06%

SL: Rs.45

Introduction: Mangalore Refinery and Petrochemicals Limited (MRPL) is a schedule ‘A’ Miniratna, Central Public Sector Enterprise (CPSE) under the Ministry of Petroleum & Natural Gas. MRPL is located in a beautiful hilly terrain, north of Mangaluru city, in Dakshina Kannada District of Karnataka State (India). The 15 Million Metric Tonne Refinery has got a versatile design with complex secondary processing units and a high flexibility to process Crudes of various API, delivering a variety of quality products.

MRPL, with its parent company Oil and Natural Gas Corporation Limited (ONGC), owns and operates ONGC Mangalore Petrochemicals Limited (OMPL), a petrochemical unit capable of producing 1 Million Tonnes of Para Xylene. OMPL, situated in the adjacent Mangalore Special Economic Zone ( MSEZ), is integrated with the refinery operations. Para Xylene from OMPL is sold in the export market. MRPL has transformed itself into a large and complex refinery with phase-III capacity expansion and has emerged into a much stronger player in the industry.

Shareholding Pattern: Oil And Natural Gas Corporation Limited (OMGC)  holds 71.63% of the shares of the company while Hindustan Petroleum Corporation Limited (HPCL) holds 16.96% of the shares of the Company.

Financials:
Mangalore Refinery and Petrochemicals Ltd (MRPL) registered a loss of ₹574.45 crore in the second quarter of 2019-20, as against a loss of ₹81.16 crore in the corresponding period of 2018-19. The company said that low GRM was because it had to shut down operations after a minor landslide in its premises due to heavy rains in Dakshina Kannada district. Gross revenue from operations stood at ₹15,262 crore during Q2 of 2019-20, as against ₹17,733 crore in the second quarter of 2018-19. Hence,  it is a special case and may not be replicated in the following quarters.
Throughput at the refinery during the second quarter of 2019-20 was at 3.68 million tonnes (3.91 million tonnes). Its BOD also approved the proposal to raise funds of up to ₹3,000 crore through issue of non-convertible debentures (NCDs).

Three Prominent Triggers :
#On account of water problem, some months back, a unit of MRPL had suspended operations. Heavy rains also had affected its production capacity. However,  at present all the units are functioning normally, whose positive effects would be seen in the following quarters.

#Because of a slump in demand for diesel in the indigenous market, Mangalore Refinery and Petrochemicals Ltd (MRPL) has increased its export of diesel by 20% since sometime. Because of decreasing demand, stock of diesel with the company rose abnormally, as a result of which it had to increase its export. Diesel from here goes to countries like Singapore and Malaysia. Surprisingly, diesel had also been exported to a USA-based company from here, company sources revealed.

#Since INR Vs USD ratio is on the side of the company,  we can look for good export revenues in the coming quarters.

Conclusion: 
Going ahead MRPL’s profitability to improve on account of:

• Improved product mix,
• Better refining margins,
• Economies of scale,
• Forward integration – Polypropylene plant,
• Various tax benefits, etc. 

MRPL has set-up the next milestone and is planning to enhance its refining capacity to 25 mmtpa (19% higher than targeted) as against an earlier target of 21 mmtpa and current capacity of 15.5 mmtpa. Additionally, the company is planning to scale up its petrochemical capacity to boost its margins. The Company will invest Rs.110 bn in this expansion.

The expansion is seen as a major margin driver as it will help the company to process cheaper, heavier crudes into high-value products like diesel, liquefied petroleum gas and propylene.

Moreover,  increase in complexity to +9 NCI (from 5.5 earlier) implies that distillate yield (including propylene) will expand, going forward.

The stock has started to show upward mobility after a long hiatus and fall from grace.  You can buy the scrip at around Rs.48.50 for short term targets of Rs. 61/66/72. Please keep a strict SL of Rs.45.

Bibliography:
#The Economic Times
#http://eresearch.co.in, etc