We assign a buy rating on Mangalore Refinery & Petrochemicals (MRPL) with a target price of Rs 100 per share. We expect an improvement in complexity, better distillate yield and access to cheaper crude oil to pave the way towards higher profitability. Despite improved visibility, stock is trading at cheap valuations based on EV/ebitda of 3x FY16e ebitda versus historical average of 7.5x. We value the stock at 4.75x FY16e EV/ebitda to arrtive at our price outlook, which represents ~58% upside from current levels.
MRPL Phase III is in the final stage of completion and has achieved an overall progress of 99.74% as on July 15, 2014. This refinery expansion & up gradation project at Mangalore includes capacity addition of 3 million tonnes per annum and up gradation project, polypropylene unit, and single point mooring (SPM) facility. During Q1FY15, the company commissioned the delayed coker unit (DCU), that will crack the residual fuel oil into gas-oil and pet-coke, coker hydro treater unit (removes sulphur impurities from diesel) and two out of three SRU units. MRPL has been able to manage its business better than its peers in terms of better cash conversion cycle. Among the four PSU companies in our comparison purview, MRPL is the only PSU refinery that has a negative working capital cycle. Historically, MRPL has reported higher and more stable GRMs than the other PSU refineries.
KR Choksey Institutional
