Kotak Securities has a buy call on Mangalore Refinery And Petrochemicals (MRPL) with a target price of Rs 92.The current market price of MRPL is Rs 72.30.Time period given by brokerage is one year when MRPL price can reach defined target.
Investment rationale by brokerage:We have revised our earnings lower to reflect weak GRMs and inventory losses.
However, rupee depreciation, lower operating cost, and lower working capital requirement resulting in lower interest cost which will partly mitigate negative impact.
Hence, we now expect MRPL to report an EPS of Rs 5.4/share in FY19E (earlier Rs 8.9) and an EPS of Rs 10.9/share in FY20E (earlier Rs 11.4).At current price, stock is trading at 6.6x P/E and 1.0x P/B multiples on FY20E earnings.
We maintain BUY on MRPL with a revised price target of Rs 92 (earlier Rs 100), valuing it at 5.5x FY20E EV/EBIDTA.
We expect stock to remain in focus on news flow of merger with HPCL.Going ahead, we expect MRPL's profitability to improve on account of i) Improved product mix, ii) Better refining margins iii) Economies of scale, iv) Forward integration - Polypropylene plant and v) Various tax benefits.New expansion plans in place - Growth is a process: MRPL has set-up next milestone and is planning to enhance its refining capacity to 25 mmtpa (19 per cent higher than targeted) as against an earlier target of 21 mmtpa and current capacity of 15.5 mmtpa.
Additionally, company is planning to scale up its petrochemical capacity to boost its margins.
The Company will invest Rs 110 bn in this expansion.
We like sharpened focus of company on growth strategy.
The expansion is seen as a major margin driver as it will help company to process cheaper, heavier crudes into high-value products like diesel, liquefied petroleum gas and propylene.MRPL is venturing into RLNG business: MRPL has signed a memorandum of understanding (MOU) with new Mangalore Port Trust to study feasibility of setting up an LNG re-gasification terminal at Mangalore.
We believe this is at a preliminary stage and will have a long gestation period.
However, if materializes then it will help MRPL to lower its refinery operating cost by replacing costlier liquid fuel with cheaper LNG.Marketing initiatives: The Company has increased its market presence by way of direct marketing of its products Petcoke, Sulphur and Polypropylene.
The company is increasing product grades of Polypropylene to enhance Polypropylene (PP) market share and thereby fetch higher margins.Maintain BUY: We have revised our earnings lower to reflect weak GRMs and inventory losses.
However, rupee depreciation, lower operating cost and lower working capital requirement resulting in lower interest cost which will partly mitigate negative impact.
Hence, we now expect MRPL to report an EPS of Rs 5.4/share in FY19E (earlier Rs 8.9) and an EPS of Rs 10.9/share in FY20E (earlier Rs 11.4).
At current price, stock is trading at 6.6x P/E and 1.0x P/B multiples on FY20E earnings.
We maintain BUY on MRPL with a revised price target of Rs 92 (earlier Rs 100), valuing it at 5.5x FY20E EV/EBIDTA.
We expect stock to remain in focus on news flow of merger with HPCL, we opine.
Going ahead, we expect MRPLs profitability to improve on account of i).
Improved product mix, ii).
Better refining margins iii).
Economies of scale, iv).
Forward integration - Polypropylene plant and v).
Various tax benefits.