The scrip of Mangalore Refinery and Petrochemicals Ltd (MRPL) touched the upper price-band of ₹63.45 on the BSE on Tuesday, as analysts expect improvement in gross refining margin (GRM). The stock, which opened at ₹52.80 on Tuesday, touched a 52-week high of ₹63.45 and closed at ₹57.70, up by 9.07 per cent, over the previous day's close on Tuesday.

On the BSE, 53.44 lakh shares were traded on Tuesday against the monthly average of 4.75 lakh shares.

Other refiners too on song

The expected rise in GRM of standalone refiners such as MRPL during the fourth quarter of 2021-22 is seen as the reason for the company touching upper price-band on the BSE. Refiners such as Reliance Industries, BPCL, HPCL, IOC and Chennai Petroleum Corporation also ended on a strong note despite an overall weak market.

In its ‘Oil and Gas Preview’, ICICI Securities said that average crude oil prices increased by $20.1 a barrel quarter-on-quarter (QoQ) to $99.5 a barrel as oil prices surged sharply amid concern over supply disruption following the geopolitical conflict in Europe. “Hence, realisations of upstream companies are estimated to improve year-on-year (YoY) as well as QoQ. On the oil marketing company front, gas oil and gasoline cracks increased by $8.3 a barrel and $1.8 a barrel QoQ, which will benefit refiners,” the preview note said.

Core GRMs of refiners are expected to improve QoQ and will be in the range of $10-11 a barrel. Refining segment earnings will be further supported by inventory gains, it said.

GRM of MRPL stood at $9.29 a barrel during Q3 of 2021-22 as against $3.26 a barrel in the corresponding period of the previous year. (GRM is the difference between the price of crude oil and the end products.)

The throughput of the refinery was at 4.37 million tonnes (mt) during Q3 of 2021-22 as against 3.08 mt in the corresponding period of 2020-21. While announcing the third quarter results, the company had stated that it achieved crude throughput of 116.44 per cent of the capacity utilisation.

Rising debt

₹According to Motilal Oswal, MRPL completed expansion/modernisation capex of ₹15,000 crore (Phase III) over FY12-15. This included a polypropylene plant as well as Single Point Mooring (SPM) for facilitating anchoring of very large crude carriers (VLCCs).

"Despite these expansions and modernisation, the company failed to sustainably improve its performance. As a result, its standalone balance sh₹eet worsened with a net debt/equity ratio of 2x in FY21 from net cash/equity ratio of 1.1x in FY16. Acquiring ONGC’s stake in ONGC Mangalore Petrochem (OMPL) raised its consolidated net debt to a staggering ₹24,400 crore, or a net debt/equity ratio of nearly 7x."

The broking firm further said it does not expect any performance disruptions due to inadequate water supply. It remains to be seen if MRPL can take advantage of the current strength in GRMs. “Our FY22 financials do not factor in possible inventory gains in Q4 as most of it may be countered by a similar, but slower inventory loss in FY23,” it said adding that “if the company outperforms our assumption by, say, $3/bbl in FY23, then our target price may rise to ₹55/share.”

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