MRPL - "Poised to take off" ::LKP

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Key highlights

Ø  MRPL’s Q1 FY12 results were significantly better y-o-y with net sales up 70.5% & PAT up 506.9%.

Ø  Core GRM jumped from $3.1/bbl in Q4 FY11 to $4.3/bbl in Q1 FY12, mirroring the sequential improvement in Singapore complex GRMs from $7.4/bbl to $8.5/bbl in the same period.

Ø  While net sales was up 8.3% q-o-q, operating profit was down 64.4% q-o-q as a result of inventory gain falling from $6/bbl in Q4 FY11 to ($0.5/bbl) in Q1 FY12.

Ø  Net sales increased 70.5% yoy and 8.3% qoq to Rs 134,346 mn mainly on account of higher product prices, led by diesel & gasoline. Throughput for Q1 FY12 was 3.3 MMT which is ~ 13.4% higher than throughput of 2.9 MMT in Q1 FY11.

Ø  Core GRM for Q1 FY12 was $4.3/bbl compared to $3.1/bbl in Q4 FY11 and $ 4.5/bbl in Q1 FY11.

Ø  As a result, net profit for Q1 FY12 was up 506.9% yoy at Rs 1,727.1 mn. EPS for the quarter was Rs 1, a tremendous improvement over the Q1 FY11 EPS of Rs 0.2.

Outlook and Valuation

Going forward, excellent product slate of the expanded refinery, due to reduction in fuel oil and introduction of polypropylene, is expected to result in GRM jumping by ~$ 3.5/bbl during FY12-13. Realization for PP is currently ~$ 1500/ton, which is almost double that of other refined products. We estimate GRM of $5.8/bbl and $9.5/bbl in FY12 and FY13 respectively. Commissioning of SPM is expected to result in lower transportation costs and corresponding increase in GRM. GRM will be even significantly higher if the company is granted the various tax incentives for its expanded refinery.

We forecast net sales of Rs 375,107.6 mn and Rs 419,488.2 mn in FY12 and FY13 respectively. We expect EBITDA to jump from Rs 18,939 mn in FY12 to Rs 38,164.5 mn in FY13. We estimate PAT of Rs 8,583.5 mn and Rs 16,687.1 mn in FY12 and FY13 respectively. We expect EPS to leap from Rs 4.9 in FY12 to Rs 9.5 in FY13.

We value MRPL using EV/EBITDA valuation and maintain BUY with a FY12E target price of  Rs 109, which translates to upside of 36.3%.  We have used EV/EBITDA multiple of 6.25x on FY13E EBITDA to arrive at our price target.