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In line performance with healthy reported GRMs

Our View

Mangalore Refinery Petrochemical’s Q4 FY24 core performance was healthy, with an EBITDA of Rs 23.3bn; $11.4/bbl of reported GRM (our est. USD11.2) on narrowing Russian crude discounts. As per our calculations, the inventory losses could be at USD1/bbl. There was an impact of SAED of Rs 0.44bn (USD0.16/bbl) and RTP reduction of Rs 0.36bn (USD0.13/bbl) during the quarter. The company has declared a final dividend of Rs2/shr after 5-years. We lower the rating to ADD from earlier BUY rating given the stock price rally, with maintaining a TP of Rs257.

Result Highlights

* EBITDA/PAT at Rs bn 23.3/11.5, performance on YoY basis declining by 33%/40% while on QoQ basis it was higher by 101%/195%. The EBITDA was in-line with our and higher than consensus est. on conforming core GRMs, SAED impact stood at Rs 0.44bn (USD0.16/bbl). The reported GRM was USD11.4/bbl (USD5 the previous quarter, USD15.1 a year ago) while the Arab heavy-light difference was USD1.8/bbl (lower than the prior quarter). The assumed core GRM at USD9.54/bbl (USD7.5 the quarter prior, USD16.8 a year back) was at a premium of USD2.2/bbl to the benchmark of USD7.3. The Russian crude discounts have fallen and are lower ~USD2-3/bbl. The cracks for major products: gasoil USD21.4/bbl, ATF USD21.2 and gasoline at USD13.6.

* As per our assumptions, the Inventory gain could be at USD1/bbl (Rs2.8bn) vs a loss of USD2.5 the previous quarter and a loss of USD4.3 a year ago. Refinery throughput was 4.5mmt at ~119% utilisation (117% the prior quarter, 119% a year ago) The opex stood lower at USD4.1/bbl, largely on higher employee expenses. Windfall impact: There was an impact of SAED of Rs 0.08bn (USD0.03/bbl) and RTP Rs 0.36bn (USD0.13/bbl) during the quarter.

* The debt stood at Rs124.5bn, down Rs15.6bn QoQ Rs42.6bn on YoY basis supported by stronger GRMs, FCF and reduction in working capital requirements. Capex for the qtr was Rs7.8bn (Rs 14.4bn in FY24), per PPAC and FY24 capex was targeted at Rs 8.2bn.

* FY24 performance: EBITDA at Rs 77bn (vs Rs 65bn last year) while PAT at Rs 36bn (vs Rs 26.4bn previous period last year) and the reported GRM at USD10.36/bbl (vs USD9.88). The FCF is at Rs 33.4bn (vs Rs 31.8bn last year).

Valuation

The GRM sensitivity for the stock is high: a $1/bbl change in GRM changes EBITDA by Rs 9.9bn. BV/share for FY25e/26e: Rs 85.5/97.4; debt: equity at 0.7/0.5x FY25e/26e vs 0.9x in FY24. At CMP, stock trades at 10x/9.6x FY25e/26e EV/EBITDA & 2.7x/2.4x P/BV We lower the rating to ADD from earlier BUY rating given the stock price rally, with maintaining a TP of Rs257, valuing stock at 10.7x FY26e EV/EBITDA.

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