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Mangalore Refinery And Petrochemicals Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤23rd Jan 26

Summary : MRPL reported strong Q3 results driven by healthy market conditions and operational efficiency, with strategic focus on retail expansion, new product development, and debt reduction, despite market valuation challenges.

Management Perspective positive : MRPL posted a significant jump in year-on-year, as well as quarter-on-quarter performance this quarter. This was the best number posted in any quarter. We are delighted to announce that we have achieved 200 mark, and should be able to complete around 250 Outlets within this fiscal year itself. We expect this particular business to keep growing and we expect this market share to be completely with us.

Concall Report Analysis & Insights

Business Overview

  1. MRPL posted a significant jump in Q3 financial performance year-on-year and quarter-on-quarter.
  2. EBITDA for Q3 was Rs.2,824 crores, up from Rs.1,064 crore in the prior year Q3.
  3. Achieved MBN of 67, indicating best energy efficiency for its capacity and complexity.
  4. Fuel and loss stood at 10.06% for the quarter, one of the best performances.
  5. Current debt is Rs. 9,290 crores with a debt-equity ratio of 0.63.

Future Growth Prospects

  1. Establishing India's first Bio-ATF plant (Rs. 364 crores) for CORSIA Norms compliance by 2027.
  2. IBB (Isobutyl Benzene) pilot plant, a base for pharmaceuticals, will start running next year.
  3. Expanding retail outlets to 250 by fiscal year-end, 500 in 3 years, and 1,000 in 5 years.
  4. Developing depots and pipeline infrastructure in Southern India, Mumbai, and Vizag.
  5. Grid power project expected to reduce fuel and loss to 9.5-10% by next fiscal year.

Management Insights

  1. Q3 performance was driven by healthy market prices, optimum energy consumption, and high throughput.
  2. Desalination plant has resolved summer water issues, ensuring operational stability.
  3. Russian crude was an opportunity crude, its loss is offset by higher finished product cracks.
  4. Retail expansion is a strategic game-changer, offering more stable margins than refinery transfers or volatile exports.
  5. The company aims to become a full-fledged refinery and marketing business, not just refining.

Signs of Skepticism

  1. Management did not disclose GRM computations, citing non-standardization across companies.
  2. IRR for the Isobutyl Benzene pilot project is not yet clear, as commercialization is years away.
  3. Discrepancy between reported throughput (4.7 MMT) and PPAC measurement (4.561 MMT) was clarified as net vs. gross crude.
  4. Management acknowledges that PSU OMCs are undervalued due to government control and potential taxes.

Risk Factors

  1. Volatility in export sales and freight rates can impact earnings.
  2. Geopolitical conditions and international sanctions create crude sourcing uncertainties.
  3. Government control on pricing and taxation affects PSU OMCs' valuations.
  4. Limited public float (12%) is a peculiarity affecting MRPL's market valuation.
  5. Potential foreign exchange loss if ECBs are paid off prematurely.

Good To Know

  1. MRPL is an ISO 9001, 14001, and 50001 certified company.
  2. The company is a subsidiary of Oil and Natural Gas Corporation Limited (ONGC).
  3. MRPL has won the Innovation Award at the Energy Technology Meet four years in a row.
  4. The refinery is complex, capable of processing heavier crudes (up to 15-16 API) based on economics.
  5. Current debt includes NCDs (Rs. 3,260 crores) due in 2028 and ECBs (500 million USD or Rs. 4,500 crores).

Key Drivers

  1. Retail expansion drives stability.
  2. Bio-ATF plant ensures compliance.
  3. IBB pilot plant for pharma.
  4. Grid power reduces fuel loss.

Key Analyst Discussions

Competitive Environment

  1. MRPL is a unique refinery with three separate crude trains, offering operational flexibility.
  2. The company is the first Indian refinery to establish a Bio-ATF plant.
  3. MRPL expects to maintain its market share in ATF due to CORSIA compliance and Shell tie-up.
  4. The company is not in a position to dictate market rates like OPEC or large companies.

Market Trends & Consumer Behavior

  1. Freight rates spiked in Q3 but have gradually come down, no longer a deal-breaker for imports.
  2. Crude sourcing is stable with 40% from Middle East (Saudi Aramco) and domestic suppliers.
  3. Heavier crudes are preferred due to economic suitability and refinery complexity, currently 70-72% of crude mix.
  4. LNG consumption is low, with a competitive term contract with BPCL.

Financial Highlights

  1. Q3 HSD cracks were $21, ATF/MS cracks were $13, currently moderated to $14-15.
  2. FY26 annual CAPEX target is around Rs. 1,500 crores, with Rs. 887 crores incurred in Q1-Q3.
  3. Debt has been reduced below Rs. 10,000 crores, with NCDs locked until 2028.
  4. Approximately Rs. 400-450 crores of the Capex is for growth projects, the rest for maintenance.
  5. Dividend possibility for Q4 is on the anvil, subject to board decision and financial context.

Product Composition

  1. Product slate includes HSD plus ATF at around 50%, MS at 15%, and other products for the remaining 35%.
  2. Fuel and loss accounts for 10% of the product slate.
  3. Almost 40% of refined products are currently exported.
  4. Retail outlet sales volume is around 120 KL per month per outlet.

Strategic Considerations

  1. Retail outlets are a major growth area, targeting 1,000 outlets in 5 years for revenue stability.
  2. Marketing infrastructure investment includes depots (Rs. 50-100 crores annually) and pipelines (Rs. 200 crores).
  3. Cost to set up a retail outlet varies from Rs. 1.5 crores (small) to Rs. 5-6 crores (urban).
  4. The company is exploring other gas sources, including CGDs and parent company arrangements.
  5. Management is examining the limited public float issue with parent companies.
Mangalore Refinery And Petrochemicals Ltd (MRPL) Concall Report Analysis & Insights | Dhanarthi