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Outlook modest despite robust performance

* MRPL delivered a beat on our EBITDA and PAT estimates led by higher-thanestimated reported GRM of USD15.1/bbl in 4QFY23. Refining throughput was at 4.41mmt (v/s our estimate of 4.47mmt and 4.39mmt in 3QFY23).

* MRPL achieved its highest ever throughput of 17.14mmt in FY23. The company also added 31 retail outlets during the year. Total retail outlets stood at 63 at end of FY23.

* Singapore GRM (SG GRM) has declined sharply to USD3.8/bbl during Apr’23 to date from USD8.2/bbl during 4QFY23. It averaged USD10.8/bbl during FY23 and had even touched a record high of USD21.7/bbl in 1QFY23.

* The SG GRM trend highlightsthat a sustained good performance remains aconcern given the highly volatile macro environment at present. Hence, we forecast a core GRM of USD6/bbl for MRPL during FY24-25.

* Considering the sustained high throughput over the past few quarters, we raise our throughput assumption to 17mmtpa for FY24-25E from 15.7mmtpa previously. Subsequently, we raise our EBITDA by 7% for FY24-25E and PAT by 15%/12% for FY24/25E.

* Multiple initiatives are in place to improve the contribution from marketing margins in both domestic and export markets along with the B2B segment. However, our doubt still remains strong on the capability of the company to deliver sustainable earnings growth. Considering the above factors, we maintain our Neutral rating with a TP of INR70 (valuing the entity at 4.5x FY25E EBITDA of INR57b).

Throughput in line; GRM above estimate

* Refining throughput was in line with our est. at 4.41mmt (+1% YoY, -2% QoQ) in 4QFY23.

* Reported GRM stood at USD15.1/bbl (v/s our est. of USD5/bbl) including inventory loss of USD1.67/bbl in 4QFY23.

* EBITDA was above our est. at 33.9b (v/s est. EBITDA of INR5.4b) in 4QFY23.

* PAT came in at INR19.1b (v/s our est. of INR1.9b) due to higher-than-est. other income during the quarter.

* There was further decrease in the Domestic Refinery transfer Price (RTP) for MRPL because of SAED and RIC (Road and Infrastructure Cess) imposed by the Government in Jul’22.

* The estimated windfall tax implication on RTP was INR7b while the actual windfall tax paid on exports was at INR1.8b in 4QFY23.

* For FY23, EBITDA stood at INR78.3b (v/s INR49.5b in FY22), with PAT at INR26.3b (v/s PAT of INR31b in FY22).

* Refining throughput was up 14% YoY at 17.1mmt.

* Reported GRM was at USD9.9/bbl, up 26% YoY.

* Total borrowings fell to INR167.1b at end-FY23 v/s INR180.5b at end-FY22.

Valuation and view – maintain Neutral

* MRPL used its expansion/modernization-related capex of ~INR150b (Phase III) over FY12-15. This included a polypropylene plant and Single Point Mooring (SPM) for facilitating the anchoring of Very Large Crude Carriers (VLCCs).

* Despite these expansions and modernization, MRPL has failed to deliver sustained healthy performance over the past few years. Since 1QFY13, the refinery has suffered at times due to inadequate availability of water during the summer season. However, with operationalization of the desalination plant in late-CY21, the problem seems to be largely taken care of.

* While we do not expect any performance disruptions due to inadequate water supply, it remains to be seen how MRPL fares given the volatile macro environment at present. The stock trades at 6.1x FY25E EV/EBITDA. Valuing the entity at 4.5x FY25E EBITDA of INR57b, we arrive at our TP of INR70. We maintain our Neutral rating on the stock.

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