Buy Mangalore Refinery; target of Rs 140: ICICI Securities

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ICICI Securities' research report on Mangalore Refinery

During the quarter, MRPL’s core operational GRMs were at US$ 6.8/bbl in Q3FY18 below our estimates of US$7.6/bbl mainly on account of a lower than-expected operational performance. However, higher than estimated inventory gains of US$2.5/bbl (our estimates: US$0.7/bbl) supported reported GRMs in Q3FY18. The benchmark Singapore GRMs have witnessed a decline in ongoing quarter (Q4FY18) to US$6.4/bbl) with product spreads on a decline.

Outlook

Media reports suggest the possibility of ONGC merging its subsidiaries MRPL and HPCL. However, clarity on the same from the government is awaited. The merger plan of HPCL and MRPL, if implemented, can benefit shareholders given the synergies of the same business. MRPL has capex plans for two major projects for further expansion of its capacity from 15 MMTPA to 18 MMTPA and upgradation of refinery to meet BS-VI norms by 2020. On account of the same, MRPL’s operational performance is expected to improve further delivering sustainable profits on standalone basis. We have a BUY recommendation on the stock at current levels. We value the stock at 6x FY19E EV/EBITDA multiple and OMPL at Rs 7.6/share to arrive at a target price of Rs 140.

For all recommendations report, click here

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