MRPL’s core GRM disappointed by coming in at $ 1.36/bbl in Q3 FY12 ::LKP Research

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MRPL’s core GRM disappointed by coming in at $ 1.36/bbl in Q3 FY12 vs. $ 4.84/bbl q-o-q & $ 1.86/bbl y-o-y; however, inventory gain of $ 6/bbl compensated for forex loss of $ 3.65/bbl during the quarter.

Inventory gain to the rescue as core GRM drops

Core GRM dropped from $ 4.84/bbl in Q2 FY12 to $ 1.36/bbl in Q3 FY12, which exceeded the fall in Singapore complex GRMs from $ 9.1/bbl to $ 7.9/bbl in the same period. Persistent depreciation of the rupee saw forex losses increasing from ($ 3.15/bbl) to ($ 3.65/bbl) in the same period. However, inventory gain at $ 6/bbl was a positive surprise. Thus, gross GRM jumped from $ 1.66/bbl in Q2 FY12 to $ 3.75/bbl in Q3 FY12.

Q3 FY12 throughput affected by CDU/VDU & Hydrocracker revamp

Throughput for Q3 FY12 was 3.04 MMT compared to 3.08 MMT in Q2 FY12 & 3.49 MMT in Q3 FY11. This was due to revamp activities during the quarter for the CDU/VDU I & Hydrocracker I units. Following the completion of the revamp jobs, the plants have been declared mechanically completed and the units are back on stream.

Net sales up 11% q-o-q & 26% y-o-y

Net sales increased 25.6% y-o-y to Rs 129,668.4 mn mainly on account of higher product prices, led by diesel & gasoline. Sales was also up 11.3% q-o-q due to shutdown of the CDU/VDU during Sept 2011. Exports increased to 43.5% of sales in Q3 FY12 as against 34.5% in Q3 FY11, led by fuel oil which is getting replaced by natural gas in the domestic market.

Capacity expansion to improve performance significantly

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 ~$ 1300/ton, which is almost double that of other refined products. We estimate GRM of $ 5/bbl and $ 8.4/bbl in FY12 & FY13 respectively. GRM will be even significantly higher if the company is granted the various tax incentives for its expanded refinery.

We expect EBITDA to double from Rs 17,805.8 mn in FY12 to Rs 35,172.6 mn in FY13. We estimate adjusted PAT of Rs 9,410.8 mn & Rs 13,719.4 mn in FY12 & FY13 respectively. We revise our FY12 & FY13 adjusted EPS estimates to Rs 5.4 & Rs 7.8 respectively.

Valuation

We value MRPL using a target EV/EBITDA multiple of 5x on FY13E EBITDA and reiterate BUY with a target price of Rs 74, which translates to upside of ~25%.