Buy Mangalore Refinery And Petrochemicals Ltd For Target Rs.215 by Choice Institutional Equities
Robust Product Spreads Fuel Profitability
MRPL reported robust revenue growth of 43.6% YoY to INR 325 Bn in 2QFY27, while adjusted PAT increased to INR 20,195 Mn from INR 6,274 Mn in 2QFY26. The strong performance was driven by higher product realisations and sustained strength in middle-distillate cracks. Supported by inventory gains, EBITDA margin expanded by 351 bps YoY to 10.1%, while operational flexibility remained intact. Elevated product spreads were further supported by persistent tightness in global middle-distillate markets, driven by constrained Russian diesel exports, depleted product inventories in Europe and reduced refinery throughput. We have adjusted our FY27E Revenue/EBITDA/PAT by 1%/1%/5% on the back of reported results. We maintain our BUY rating with an unchanged TP of INR 215/sh, implying 22% upside
Furthermore, MRPL provisionally recognised an exceptional loss of INR 1,187.6 Mn in 2QFY27 following a fire at its Coker Hydrotreater (CHT) unit. The loss includes damaged assets, with an estimated replacement cost of INR 2,250 Mn, inventory losses and incidental expenses. The affected assets are adequately insured, with the final loss subject to reassessment. For 1HFY27, MRPL reported net exceptional income of INR 3,530 Mn, reflecting prior-quarter petroleum product price revisions of INR 4,717.6 Mn, partially offset by the fire-related loss
Revenue and PAT broadly in line, while EBITDA misses CIE estimates
* Revenue for Q2FY27 was up by 43.6% YoY and down by 15% QoQ at INR 325 Bn (vs CIE est. INR 333 Bn)
* EBIDTA for Q2FY27 was up by 120.3% YoY and up by 148.9% QoQ at INR 32.8 Bn (vs CIE est. INR 40.4 Bn). The EBITDA Margin stood at 10.1%, up by 351 bps YoY (vs CIE est. of 12.1%)
* The Adjusted PAT for Q2FY27 was up by 221.9% and 326.1% QoQ at INR 20,195 Mn (vs CIE est. INR 20,576 Mn). Adjusted PAT Margin improved 308 bps YoY, reaching 5.8% (vs CIE est. 6.2%)
Elevated Diesel Cracks to Drive Earnings and Return Ratios
We expect diesel prices to remain elevated through FY27, supporting strong earnings growth for standalone refiners in 2HFY27. Seasonally higher petroleum product demand during October–December, coupled with relatively softer crude oil demand, should support stronger product cracks and expansion in gross refining margins (GRMs). With ICE gasoil cracks currently exceeding USD 80/b, we expect elevated crack spreads to sustain through 2HFY27, providing further upside to refining profitability. Consequently, we project FY27 EBITDA and PAT to increase by 122% YoY and 349% YoY, respectively. Stronger profitability should also drive a significant improvement in return ratios, with RoE expanding to 47.6% in FY27 from 14.2% in FY26, while RoCE is expected to increase to 42.2% from 18.1% over the same period
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