Benefit of phase III projects few quarters away • MRPL :: ICICI Securities, link

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Benefit of phase III projects few quarters away
• MRPL declared its Q2FY15 results, which were below our estimates.
The topline declined 15.2% YoY to | 15913.8 crore while the loss
came in at | 951.47 crore
• EBITDA (loss) at | 1380.26 crore came in below our estimate of an
EBITDA (loss) of | 420.9 crore mainly due to negative GRM of
US$4/barrel against expectation of negative GRM of US$1.3/barrel
• Subsequently, the company reported a loss during the quarter of
| 951.47 crore, below our estimate of a loss of | 544.5 crore
Negative GRMs a concern, long term story intact
MRPL reported negative GRMs of $4/bbl in Q2FY15, lower than our
estimate of negative GRM of $1.3/bbl. This was on account of higher fuel
consumption on account of stabilisation of newly added units and higher
inventory loss. This loss may continue for the coming quarters till the
phase III expansion stabilises. Historically, MRPL has reported higher and
more stable GRMs than other PSU refineries. H1FY15 was difficult for the
company as the weak economic environment and reduced crude oil
prices had an adverse impact on the GRMs of MRPL. However, with most
issues expected to ease away and the secondary units getting
commissioned by FY15E, we believe the GRMs of MRPL will bounce back
in the coming years. We have estimated GRMs of US$0.5/barrel and
US$5.3/barrel for FY15E and FY16E, respectively. The throughput for
Q2FY15 came in at 3.5 MMT vs. 3.7 MMT in Q2FY14. This decline was
mainly due to plant upsets while commissioning new units, resulting in
unavailability of secondary processing units.
Only polypropylene unit of phase III project under progress
MRPL Phase III is almost complete with the commissioning of
Petrochemical Fluidized Catalytic Cracking Unit (PFCCU). This refinery
expansion and upgradation at Mangalore includes: - (1) capacity addition
of 3 MMTPA and upgradation project (2) polypropylene unit and (3) single
point mooring (SPM) facility. During Q2FY15, the company commissioned
the PFCC unit, the third train out of three trains of Sulphur Recovery Unit
(SRU), DCU coke handling system, raw water treatment, LPG mounded
bullets and other related offsite facilities. The captive power plant is
operating and under stabilisation. The physical progress of Polypropylene
Unit (PPU) is 97% and is expected to be mechanically completed during
Q3FY15. Higher complexity on commissioning of phase III project will
lead to an increase in distillate yield from 76.5% to 80.1%, better
capability to handle heavier & sourer crude and production of higher
margin value-added products.
Best placed to play refining cycle among PSU peers
Overall, MRPL has the lower policy leverage and lowest gearing on the
balance sheet among PSU refineries. However, with the estimate of fuel
loss due to commissioning of new projects and a sharp decline in crude
oil prices, the GRMs of the company may continue to be lower in the
coming quarters till the expansion is complete. We value the stock at 5.5x
FY16E EV/EBITDA multiple to arrive at a target price of | 65

LINK
http://content.icicidirect.com/mailimages/IDirect_MRPL_Q2FY15.pdf