Sell Mangalore Refinery, target price Rs 25: ICICI Direct

ICICI Direct has given a sell rating to Mangalore Refinery And Petrochemicals with a 12-month target price of Rs 25. The share price moved up by 2.64 per cent from its previous close of Rs 32.20. The last traded stock price is Rs 33.05.

MRPL reported a weak set of Q4FY20 numbers on the profitability front. Operating revenue increased 4.8 per cent quarter on quarter to Rs 17545.1 crore while oil throughput declined 6.6 per cent quarter on quarter to 3.8 MMT. Reported GRMs disappointed and came in at -US$4.5/bbl, impacted by inventory losses. Subsequently, EBITDA loss was at Rs 1922.1 crore vs. EBITDA profit of Rs 299.7 crore in Q3FY20, also impacted by Rs 508.9 crore forex loss. The company reported net loss at Rs 1596.4 crore vs. Rs 36.6 crore loss in Q3FY20.

Investment Rationale

According to the brokerage, the nationwide lockdown due to spread of Covid-19 has reduced capacity utilisation of the company and will impact its near term performance. On the business front, MRPL plans to augment its capacity from 15 MMTPA to 18 MMTPA over the next few years. However, the last expansion project to increase complexity as well as capacity did not achieve desired results. Also, weak global product spreads will affect refining margins thereby affecting profitability. MRPL’s investment in OMPL has also not paid off. It continues to be a drag at the consolidated level. The brokerage has downgraded the stock from reduce to sell with a target price of Rs 25/share (~0.5 times FY22E BV).

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 17283.05 crore, up 5.27 per cent from last quarter sales of Rs 16417.66 crore and up 10.31 per cent from last year's same quarter sales of Rs 15668.18 crore. The company reported net profit after tax of Rs -2249.58 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 88.57 per cent stake in the company as of March 31, 2020, while FIIs held 0.69 per cent, DIIs 4.3 per cent and public & others 6.44 per cent.