IGI Logo

In-line results, debt increases; reiterate Neutral

* MRPL reported EBITDA in line with our estimates (at INR8.5b), but lowerthan-estimated PAT of INR3.3b – due to high interest cost. Refining throughput increased (to a ~107% utilization rate) on the back of increasing demand for petroleum products. However, current utilization has declined to ~80% due to the ongoing lockdowns.

* A key concern noted as per the results was the increase in consol. debt by ~35% YoY to INR227.5b in FY21 (standalone debt up 49% YoY to INR153.6b) – amid the acquisition of a 100% stake in OMPL and loss during 9MFY21.

* SG GRM has further improved to an average of USD2.6/bbl in 1QFY22’TD. We believe that with (a) demand for petroleum products returning to normal worldwide – as COVID lockdowns are phased out completely and (b) the closure of refinery complexes (estimated ~3mnbopd over the next 2–3 years), refining margins would recover to the long-term average (of USD5– 6/bbl).

* On the back of better GRMs and the commissioning of a seawater desalination plant by 2HCY21 (which would obviate shutdowns in the absence of sufficient water supply), we revise up our EV/EBITDA multiple to 6x (from 5x earlier). However, post the recent run-up of ~36% in one month and on current concerns over increased debt, we maintain Neutral on the stock.

EBITDA in line with our estimates

* EBITDA was in-line at INR8.5b in 4QFY21 (v/s loss of INR14.1b in 4QFY20).

* The company reported forex loss of INR73m v/s our estimate of gains of INR436m.

* The tax rate stood at 37% during the quarter – as the company continues to report on the older tax regime. Deferred tax assets stand at INR1b at endFY21. However, the company highlighted the decision to move to the new tax regime would be taken during the year. PAT stood at INR3.3b.

* FY21 EBITDA stood at INR6.3b v/s loss of INR18.5b in FY20. PAT loss reduced to INR2.4b (v/s INR27.4b in FY20).

Core GRM at USD2/bbl (against SG GRM of USD1.8/bbl) in 4QFY21

* Refining throughput was in-line at 4.03mmt (+5% YoY) – as product demand reached pre-COVID levels during the quarter.

* Reported GRM was higher at USD6.5/bbl (v/s our est. of USD5.5/bbl). Higher opex at USD2.4/bbl (v/s our estimate of USD1.8/bbl) led to in-line EBITDA.

* The company reported inventory gains of USD4.5/bbl, resulting in core GRM of USD2.0/bbl (v/s our est. of USD1.5/bbl).

* For FY21, refining throughput was down 19% YoY to 11.5mmtpa amid COVID-led lockdowns in 1HFY21. Reported GRM averaged at USD3.7/bbl v/s GRM loss of USD0.2/bbl in FY20; core GRM stood at USD0.7/bbl in FY21 v/s USD2.2/bbl in FY20. Core GRM outperformed SG GRM (USD0.5/bbl) in FY21.

Valuation and view

* The refinery is likely to consume ~1mmscmd of gas from the Kochi–Mangalore pipeline as the gas turbine modification is complete. Gas usage would also aid profitability in the current subdued refining margin environment. Our FY22/FY23 GRM forecast is conservative at USD4.5–5.5/bbl – this presents the likelihood of an upgrade, if benchmark GRMs were to improve sooner.

* The stock trades at 6.7x FY23 EPS of INR7.2 and 5.4x FY23 EV/EBITDA. We value the stock at EV of 6x FY23E EBITDA to arrive at fair value of INR56/share for the standalone refinery and deduct INR13/share for OMPL. Our Target Price stands at INR43. 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