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MRPL – play the refining cycle

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MRPL – play the refining cycle

Mangalore Refinery & Petrochemicals is expanding its refinery to 15 MMT by Jan/Feb 2012. The expansion will witness the refinery complexity rising from 5.5 to 9, which will be helpful for maximizing GRM. The expanded refinery will also consist of a 2.2 MMTPA Polypropylene (PP) FCCU which will mark the entry of the company into the petrochemical space. The PP unit is expected to achieve mechanical completion by Apr 2012 and commissioning by Jun 2012. Excellent product slate of the expanded refinery, due to reduction in fuel oil and introduction of PP, 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 $ 5.1/bbl and $ 8.7/bbl in FY12 & FY13 respectively.

Upon completion of the expansion project, MRPL would be eligible for a 7 yr tax holiday under section 80IB of Income Tax Act. The company is also in talks with Karnataka State Govt. for Rs 1.25 bn Sales Tax deferment benefit, Rs 0.9 bn of CST benefit, Rs 0.8 bn of saving of Entry Tax on crude and one-time benefit of Rs 3 bn on exemption of Entry Tax on project benefits. GRM will be significantly higher than our estimates if the company is granted these tax incentives.

We value MRPL using a target EV/EBITDA multiple of 6x on FY13E EBITDA and reiterate BUY with a target price of Rs 81, which translates to upside of above 30%.

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Written by Fundamental Side

November 16, 2011 at 6:24 pm