Buy Mangalore Refinery; target of Rs 64: ICICIdirect

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ICICI direct's report on Mangalore RefineryMRPL reported its Q2FY16 numbers, which were below our estimates. The topline declined 9.7% QoQ to Rs 10221.1 crore (our estimate: Rs 9554.6 crore) due to lower crude oil prices QoQOperating GRMs improved to $5.3/bbl above our estimate of $4.8/bbl in Q2FY16. However, the reported GRM at $0.3/bbl was marginally higher than our estimate of $0.2 /bbl due to higher than estimated inventory losses.PAT during the quarter declined to a loss of Rs 909.5 crore against a profit of Rs 405.9 crore in Q1FY16, below our estimate of a loss of Rs 836.2 crore, due to higher than estimated forex lossesOutlook & valuationOverall, MRPL has the lower policy leverage and lower gearing on the balance sheet among PSU refineries. With the improvement in operational performance, we expect the company to deliver profits and thus creating value for shareholders in the coming years. A scheme of amalgamation of MRPL with ONGC Mangalore Petrochemicals (OMPL) has been proposed for approval of various regulatory authorities. OMPL is situated adjacent to MRPL phase III and it can receive feedstocks directly from MRPL. The management expects the merger to drive up its margins through various product streams. This acquisition is positive for company’s diversification. We expect the company to report a net profit of Rs 1319.9 crore in FY17E vs. loss of Rs 1712.2 crore in FY15. On an EV/EBITDA basis, it is trading at 5.3x FY17E EBITDA. We value the stock at 5.5x FY17E EV/EBITDA multiple and OMPL at Rs 5.7/share to arrive at a target price of Rs 64, says ICICI direct research report.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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