Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel https://t.me/InvestmentGuruIndia
Download Telegram App before Joining the Channel
Better than expected core GRM, but concerns remain
* 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%).
Throughput improved after two quarters of operational issues
* Crude throughput was down 8% YoY/10% QoQ to 4.1mmt (in line with est.), implying 109% utilization for the quarter.
* Core GRM for 3QFY20 stood at USD2.73/bbl (v/s est. USD1.4/bbl and USD4.0/bbl in 3QFY19). Inventory gain for the quarter was USD0.46/bbl v/s loss of USD4.63/bbl in 3QFY19.
Valuation and View
* Originally, it was expected that the INR150b Phase-III expansion would generate ~USD8/bbl of GRM when SG GRM is at USD6/bbl.
* In 1QFY20, due to fresh water shortage from the Nethravathi River, MRPL was forced to close its refining units for ~75 days (similar issue faced in 2012 and 2016 also). The company is setting up a sea-water desalination plant, which is likely to be completed by 3QFY21 (with capex of ~INR6b). The company is also focusing on increasing the use of domestic sewage.
* The board has approved raising INR30b through issue of Non-Convertible Debentures (NCDs) in 2QFY20.
* The stock trades at 7.6x FY21 EPS of INR5.7 and EV/EBITDA of 5.3x FY21E. We value the stock at an EV of 5x FY21E EBITDA to arrive at a fair value of INR50/share for the standalone refinery and deduct INR4/share for OMPL. Our target price stands at INR46. Maintain Neutral.
To Read Complete Report & Disclaimer Click Here
For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412
Above views are of the author and not of the website kindly read disclaimer