Projects nearing completion to boost MRPL’s margins

It was a coincidence that the shares of Mangalore Refinery & Petrochemicals ( MRPL) hit the lowest level in a decade recently, when it has just completed 10 years under ONGC. The scrip is in the recovery mode of late, indicating its woes are over.


MRPL’s market capitalisation dipped below Rs 5,000 crore mid-August 2013 from a peak of over Rs 25,000 crore in December 2007 and almost 40% below its valuation at the peak volatility of mid-2008. The reason was its consistent inability to post profits.

MRPL suffered losses for FY13 as well as in the first quarter of FY14. The reason was a drop in refining margins due to the delay in its expansion project as well as volatility in oil and rupee movements.

The company completed its expansion project last year, but still some of its units have not commissioned operations due to over an 18-month delay in finishing the captive power plant.

Things are likely to improve from the present as it aims at commissioning the power plant by October 2013.

This will enable it to run its critical units necessary to use heavy and high sulphur types of crude oils, which are available cheap. Once stabilised, these units could add $3 to its gross refining margins – the difference between cost of crude oil and price of refined products it sells.

The company also commissioned its single point mooring (SPM) project 16 km from the shore for handling very large crude carriers (VLCCs). This will not only bring in freight economies, but also allow access to crude oils from far off places like West Africa and Latin America. Both these factors will be positive for its GRMs.

The company is also nearing completion of its 440,000 tonne per annum polypropylene unit, which is expected to commence operations in early 2014. This will be further add value to its petrochemical products and improve margins.

Cumulatively, all these developments are likely to improve MRPL’s operating profit margins substantially from the Jan-March 2014 quarter onwards.

This has already started reflecting in the company’s market performance. The scrip has gained nearly 30% from its bottom in the last one month.

The company’s debt-equity ratio stands below 1 and it has further expansion plans.