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ET Intelligence Group: The stock of Mangalore Refinery and Petrochemicals (MRPL), a subsidiary of ONGC, has gained 19% in a month on expectations of superior gross refining margin (GRM) for the March quarter compared with the regional benchmark. In addition, it is likely to report lower inventory loss arising from quarterly fall in crude oil prices.
MRPL's GRM per barrel for the March quarter is expected to be $7 compared with the Singapore benchmark at $6.4.
Several factors are likely to improve MRPL's GRM for the March quarter. First, the refinery utilisation is expected to remain higher than its rated capacity for the third quarter in a row. Its refinery capacity has increased to 15.5 million tonnes per annum (MTPA) from 11.8 MTPA earlier.
Second, the distillate yield has been gradually improving. The higher distillate of a refinery means more production of high-value petroleum products, which improves GRMs.Typically , every 1% improvement in the distillate yield adds $0.15 per barrel to the GRM. The distillate yield is expected to improve to 80% in the next 2-4 quarters from the current 76-77%.
The third factor is the newly constructed polypropylene plant, which produces higher value petrochemical products. It was commissioned in the second half of FY16. The throughput of the polypropylene is expected to be 4,40,000 kilo tonnes (kt) in the current fiscal compared with 2,50,000 kt in the previous fiscal.
The additional output may add another $1 per barrel to the GRMs in FY18. Higher LPG prices will further sup port GRMs of MRPL. The prices of LPG increased to $500 per tonne in the March quarter from $365 per tonne in the previous quarter. LPG accounts for nearly 5% of the total product yield of the MRPL.
Magalore Refinery and Petrochemicals moves up the charts on margin, inventory cheer
The company will also benefit once it merges ONGC Mangalore Petrochemicals - a plant promoted by its parent - with itself. The merger is expected in the second half of the current fiscal. Naphtha, which is the end-product of MRPL's refinery, will be a raw material for the petrochemical plant. Hence, it will provide an assured buyer for the refinery .
MRPL's earnings are expected to grow by 20% for the current and the next fiscal. At Tuesday's stock price of Rs 115.3, the company's enterprise value (EV) was four times the FY19 projected operating profit before depreciation (EBITDA). The expectation of 21% annualised growth in free cash flow in two fiscals to FY19, and lower future capital requirement make valuations reasonable.
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