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Weaker Core GRMs impact the earnings

Our View

Mangalore Refinery Petrochemical’s Q3 FY24 core performance was weak, with an EBITDA of Rs 11.6bn; $5/bbl of reported GRM (our est. USD7.8) on narrowing Russian crude discounts. As per our calculations, the inventory losses could be at USD2.5/bbl. There was an impact of SAED of Rs 1.9bn (USD0.68/bbl) and RTP reduction of Rs 2.53bn (USD0.92/bbl) during the quarter which impacted the core performance. The company has declared an interim dividend of Rs1/shr after 4-years and fixed 2nd Feb’24 as the record date. We lower the rating to NEUTRAL from earlier ADD rating given the stock price rally, with a revised 12-mth TP of Rs173 (Rs151 earlier).

Result Highlights

EBITDA/PAT was at Rs bn 11.6/3.9, better performance on YoY basis while on QoQ basis it was lower by 46%/63%. The EBITDA was lower than ours and consensus est. on weaker-than-expected core GRMs and SAED which stood at Rs 4.4bn (USD1.6/bbl). The reported GRM was USD5/bbl (USD17.1 the previous quarter, USD3.88 a year ago) while the Arab heavy-light difference was USD2.1/bbl (same as the prior quarter). The assumed core GRM at USD7.5/bbl (USD10.1 the quarter prior, USD7.76 a year back) was at a premium of USD21/bbl to the benchmark of USD5.4. The GRMs were weaker on minor changes to slate and lower Russian discounts. The cracks for major products: gasoil USD20.4/bbl, ATF USD23.5 and gasoline at USD7.2/bbl.

Refinery throughput was 4.2mmt at ~117% utilization (85% the prior quarter, 119% a year ago). The opex stood lower at USD1.8/bbl, adjusting Rs2.2bn which has been capitalized during the quarter. Windfall impact: There was an impact of SAED of Rs 1.9bn (USD0.68/bbl) and RTP Rs 2.53bn (USD0.92/bbl).

The debt stood at Rs140.1bn, down Rs40.4bn YoY supported by stronger FCF and reduction in working capital requirements. Capex was Rs3.4bn (Rs 7.4bn in 9MFY24), per PPAC and FY24 capex is targeted at Rs 10bn.

9MFY24 performance: EBITDA at Rs 53.7bn (vs Rs 30.1bn previous period last year) while PAT at Rs 24.6bn (vs Rs 7.3bn previous period last year) and the reported GRM at USD9.99/bbl (vs USD8.22). The FCF is at Rs 26.5bn (vs Rs 4.3bn in the previous period last year).

Valuation

High GRM sensitivity: a $1/bbl change in GRM changes EBITDA by Rs 9.9bn. BV/share for FY25e/26e: Rs 84/94; debt: equity at 0.7/0.5x FY25e/26e vs 1.7x in FY23. At CMP, stock trades at 7.9x/9.0x FY25e/26e EV/EBITDA & 2.0x/1.8x P/BV. We lower the rating to NEUTRAL from earlier ADD rating given the stock price rally, with a revised 12-mth TP of Rs173 (Rs151 earlier), valuing stock at 1.8x FY26e P/BV.

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