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Favourable refining scenario to drive earnings…

About the stock: Mangalore Refinery & Petrochem (MRPL), a subsidiary of ONGC, is a refining company.

* The company has total refining capacity of 15 MMTPA

* ONGC Mangalore Petrochemicals (OMPL), a subsidiary of MRPL, has been amalgamated with the company

Q4FY22 Results: MRPL reported sharp growth YoY in earnings with improvement in operational performance and tax write-back.

* Revenue was up 12.8% QoQ to | 28227.8 crore in Q4FY22. Crude throughput was flat QoQ at 4.4 MMT

* The company reported a sharp improvement in GRMs as per our understanding. EBITDA was | 2941 crore, up 71.2% QoQ

* MRPL reported PAT of | 3008.2 crore, up 413% YoY

What should investors do?

Product cracks of transport fuels are currently trading at multi-quarter highs. GRMs are likely to benefit from favourable global refining scenario and the MRPL is expected to report healthy earnings in near term.

* We revise our rating on the stock from SELL to BUY

Target Price and Valuation: We roll over valuations to FY24E and value MRPL at | 90/share i.e. ~1x FY24E BV)

Key triggers for future price performance:

* Sustained GRMs at elevated level

* Higher capacity utilisation

* De-leveraging balance sheet

Alternate Stock Idea:

Besides MRPL, in our oil & gas coverage we also like IOC.

* Indian Oil Corporation (IOC) is India’s largest refining & marketing company with an installed refining capacity of ~70 MMT. IOC’s GRMs are expected to remain healthy in the near term that will offset weaker marketing profitability. Pipeline business profitability has remained consistent over the last few years  BUY with a target price of | 150

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