Sell MRPL Ltd For Target Rs.120 by Motilal Oswal Financial Services Ltd
Earnings to remain weak amid soft refining cycle
* MRPL reported a substantial beat vs. our estimates in 3QFY25 due to a strong refining performance, with GRM coming in at USD6.2/bbl (our estimate: USD5/bbl). The strong refining performance was likely due to better core GRM as well as inventory gain.
* While Singapore GRM exhibited a steady recovery in 3QFY25, averaging USD5/bbl (vs. USD3.6/bbl in 2Q), the near-term refining outlook continues to remain weak with SG GRM averaging a mere USD2.7/bbl in 4QFY25YTD.
* Considering the weak refining outlook, we bring down our 4QFY25 GRM assumption to USD5.4/bbl (vs. USD6.4/bbl earlier). We also cut our FY26/FY27 EBITDA by 3%/2% as we temper our GRM assumption to USD6.5/USD7 per bbl (earlier: USD7/USD7.5 per bbl). Further, we model a throughput of 18mmt for FY26/FY27 (earlier: 17mmt).
* With oil demand growth likely to remain weak in CY25 at ~1mb/d, we do not foresee a sharp turnaround in the refining cycle in the near to medium term. We believe that our FY26/FY27 GRM assumptions are at the higher end of what the company has delivered historically and provide further downside risk to our EBITDA estimates.
* Following this earnings revision, our revised TP stands at INR120, premised on 5.5x Dec’26E EV/EBITDA.
* We believe a strong FCF generation of INR14.5b/INR31.5b in FY25/FY26 and a debt reduction will result in a decline in the net debt-to-equity ratio to 0.7x by the end of FY26 (vs. 0.89x on 30 Sep’24).
* However, at 1.7x FY26E P/B (FY26E RoE: 13.1%), we believe valuations for MRPL remain elevated. We reiterate our Sell rating on the stock, implying a 16% potential downside from the CMP.
Robust GRM drives a 42% beat on EBITDA
* The refining throughput was in line with our estimate of 4.6mmt (in line YoY) in 3QFY25.
* However, the reported GRM came in at USD6.2/bbl (vs. our est. of USD5/bbl). The variance vs. our estimate was likely due to better core GRM as well as inventory gain.
* GRM registered a sharp recovery over 2QFY25 (reported GRM: USD 0.6/bbl) amid steady recovery in Singapore GRM on a QoQ basis, averaging USD3.6/bbl in 2Q and USD5/bbl in 3QFY25.
* Profitability in 3QFY25 was also hit by a forex loss of INR1.6b.
* The resultant EBITDA stood 42% above our estimate at INR11.9b. PAT came in 59% above our estimate at INR3b.
* In 9MFY25, net sales grew 8% to INR701b, while EBITDA/PAT stood at INR13.7b/-INR3.1b (vs. INR54.9b/INR24.6b in 9MFY24). In 4QFY25, we are building in a net sales/ EBITDA/APAT of INR217b/INR8.4b/INR1.7b.
Other highlights:
* Venezuela’s Merey-16 Crude was processed for the first time in Nov’24.
* The highest-ever production of ATF/Benzene, at 763tmt/61tmt, was achieved during 3QFY25.
Valuation and view
* The stock is currently trading at FY26E EV/EBITDA of 6.9x. Additionally, the dividend yield is expected to be a meager 1.5% in FY26 at the current price. Our GRM assumptions of USD6.5/USD7.0 per bbl for FY26/FY27 are also at the higher end of what the company has delivered historically.
* We value the stock at 5.5x Dec’26E EBITDA of INR54.1b to arrive at our TP of INR120. We reiterate our Sell rating on the stock.
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