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Inventory gains lift profits; subdued outlook...

MRPL’ Q4FY21 performance was driven by higher throughput as well as inventory gains. Operating revenue increased 47.1% QoQ to | 20788.1 crore while oil throughput also increased 30.8% QoQ to 4 MMT due to improvement in demand of petroleum products QoQ. Reported GRMs were boosted by inventory gains and came in at US$6.5/bbl. Subsequently, EBITDA was at | 845.9 crore, 4.8x QoQ. Reported PAT was at | 328.3 crore vs. | 75.6 crore loss in Q3FY21.

Core GRMs still weak; inventory gain support margins

MRPL’s reported GRMs for the quarter came in at US$6.5/bbl. MRPL’s core GRMs were US$2/bbl and inventory gain was at US$4.5/bbl. Although, on technical parameter basis, MRPL has an edge over other refineries with its refining complexity number at 10, the company has been unable to improve its performance on a sustainable basis due to some glitches or the other in operations in the past. In Q4FY21, global product spreads, while improved QoQ, were still at low levels. Going ahead, we believe MRPL’s core operational performance will remain subdued as core refining margins are estimated to remain lower. We estimate core GRMs at US$3.5/bbl and US$4/bbl for FY22E and FY23E, respectively.

Demand decline to impact crude throughput

MRPL’s crude throughput for the quarter was at 4 MMT, up 30.8% QoQ as demand gradually picked up. In the current quarter, second wave of Covid19 has affected demand for petroleum products which is impacting capacity utilisation of MRPL. Accordingly, we estimate lower throughput for H1FY22E and steady throughput from H2FY22E onwards. We expect throughput at 15 MMT and 16 MMT for FY22E and FY23E respectively.

Valuation & Outlook

MRPL’s capacity utilisation improved QoQ with increasing demand and surpassed pre-Covid level. However, capacity utilisation reduced during the current quarter (Q1FY22E-TD) due to declining demand. On the business front, MRPL has plans to augment its capacity from 15 MMTPA to 18 MMTPA over the next few years. However, last expansion project to increase complexity as well as capacity did not achieve desired results.

Global product spreads have not fully recovered yet and will continue to affect refining margins. MRPL’s previous investment in OMPL have not paid off. OMPL remains a loss making entity and continues to be a drag on consolidated level. Also, debt reduction will be a key monitorable in near term. We roll over our valuations to FY23E and maintain SELL on the stock. We value MRPL standalone refinery at | 42/share (1x FY23E BV) (we assign nil value to OMPL investment) to arrive at TP of | 42 (previous TP: | 22).

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