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Earnings start to peak out; reiterate Sell

* While MRPL delivered a solid beat vs. our estimates, we believe its earnings are set to decline from 1QFY25 amid weaker SG GRM QoQ. We are building in a GRM of USD8/bbl in FY25/26, leading to an RoE of 18.2%/15.4%. Further, we are modeling a throughput of 17mmt in FY25/FY26, in line with the company guidance.

* We like its strong FCF generation of INR34.8b/INR35.2b in FY25/26 and reduction in debt, resulting in a declining Net Debt/Equity ratio of 0.5x by the end of FY26 (vs. 0.94x currently). MRPL guided INR80b of capex over the next five years towards:

* increasing petchem integration from 10.0% to 12.5%,

* increasing total retail outlets to 1,000 by FY27 (from 100 currently), and

* launching Isobutyl-benzene, with a pilot plant already awarded.

* However, at 2.5x FY26E P/B, we believe the valuations remain expensive; especially, given its FY26E RoE of 15.4% as per our calculation.

* As such, we reiterate our Sell rating with a TP of INR175, implying 24% potential downside from current levels.

Beat led by higher-than-expected GRM

* The refining throughput was in line with our est. of 4.6mmt (up 4% YoY) in 4QFY24. Reported GRM was USD11.4/bbl (vs. our est. of USD7.9/bbl). Core GRM was USD10.4/bbl with an inventory gain of USD1/bbl.

* Resultant EBITDA stood at INR23.4b (vs. our est. of INR15.1b). PAT came in at INR11.4b (vs. our est. of INR6.2b).

* Total borrowings increased to INR148b at the end of 4Q from INR140b at the end of 3Q.

* There was a decrease in the domestic refinery transfer price for MRPL because of SAED and RIC (Road and Infrastructure Cess) imposed by the government in Jul’22.

* The estimated windfall tax implication on RTP was INR360m, while the actual windfall tax paid on exports was INR80m in 4QFY24.

* MRPL’s 4Q earnings included an exceptional item amounting to INR83m.

* MRPL settled certain arbitrage cases pertaining to previous years, for which expenses of INR543m were recognized.

* A provision of INR460m for the purchase of renewable energy certificates, which was created to meet the compliance requirement of the renewable purchase obligation, was reversed in 4QFY24.

* The company changed its accounting policy regarding de-recognition of PPE, resulting in an increase in PBT by INR99m in 4Q. As a result of the change in accounting policy, inventory of scrap material generated from discarded PPE has now been discontinued. Hence, the opening stock of scrap material amounting to INR122m has now been adjusted against the sale of scrap under other operating revenue. The above changes resulted in a reduction in PBT by INR197m.

* For FY24, EBITDA stood at INR78.3b (same as in FY23), while PAT increased 36% YoY to INR36b (vs. INR26.4b in FY23). Refining throughput was down 3% YoY to 16.6mmt. Reported GRM stood at USD10.8/bbl, up 11% YoY.

* The Board declared a final dividend of INR2/share (20% of FV).

Valuation and view

* The stock is currently trading at FY26E EV/EBITDA of 8.2x, which is significantly above its long-term average of ~7x. Additionally, the dividend yield is expected to be a meager 1.2% (each) in FY25 and FY26 at the current price. Our GRM assumption of USD8/bbl from 1QFY25 onwards is also at the higher end of what the company has delivered historically.

* We value the stock at 6.5x FY26E EBITDA of INR61b to arrive at our TP of INR175. We reiterate our SELL rating.

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