Stock Review: MRPL

THE 21% net profit growth that Mangalore Refinery and Petrochemicals (MRPL) posted for the December 2010 quarter could have been better if the heavy forex gains of last year were not taken into account. Hence, the company's performance should not be judged from the reaction of stock market.

   The MRPL scrip got a severe beating on Wednesday as it fell more than 8% to its 52-week low in spite of a healthy December quarter show.

   At the operational level, the company's performance was much better, with gross refining margins at $6 per barrel and highest ever throughput of 3.49 million tonne.
   The company's operating profit grew 87% against the year-ago period. However, the 153-crore foreign exchange gains it had booked last December meant that the growth in gross profit was just 14%.

   Another factor that affected profit growth during the quarter was the provisions for pay revisions of non-managerial staff. The company wrote off 56 crore during the quarter towards arrears of pay revisions with effect from April 2007.

   The company is working on a mega investment programme, which will almost triple its gross block by end FY12. It is implementing a 14,000-crore refinery expansion project to be completed by October. This will not only expand its refining capacity from 12 million tonnes to 15 million tonnes, but also improve its ability to process cheaper varieties of crude oil, which are heavier or with higher sulphur content.

   Another major project will add 0.44 million tonnes of polypropylene capacity by April 2012 at a capital cost of 1,800 crore.

   MRPL is also working with ONGC to set up an aromatics complex in a special economic zone near its refinery in Mangalore. The 5,750-crore project is scheduled to be commissioned by end FY13.

   Considering the recent fall in market value and gains in corporate earnings, the company's valuations dipped to a price-to-earnings multiple (P/E) of 12.3. The global refining industry appears to have come out of the woods with gross refining margins, or the money a refiner makes on refining each barrel of crude oil, moving up in the December quarter. The first few weeks of the March 2011 quarter indicate that the strength continues, which can prove a key positive for the company going ahead.