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MRPL: Promising Prospects - Views on News from Equitymaster
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  • Jun 6, 2003

    MRPL: Promising Prospects

    Mangalore Refineries and Petrochemicals Ltd. (MRPL) had recently announced its results for FY03. While the topline has grown by 50%, net losses declined by about 16% in FY03. Crude prices strengthened during the year and as the oil sector was deregulated, refineries were able to sell products at higher prices in line with the strengthening crude prices. Refining capacity of MRPL had increased from 3 MTPA to 9 MTPA in FY00. Increase in net sales is mainly on account of increase in capacity utilization. In FY02, due to a global slowdown, the topline of the refineries had declined in general.

    (Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
    Net Sales 11,627 20,496 76.3% 53,714 80,587 50.0%
    Other Income 67 223 235.2% 440 548 24.5%
    Expenditure 11,499 19,471 69.3% 51,587 78,255 51.7%
    Operating Profit (EBDIT) 128 1,025 698.4% 2,127 2,332 9.6%
    Operating Profit Margin (%) 1.1% 5.0%   4.0% 2.9%  
    Interest 1,655 1,608 -2.9% 6,723 5,671 -15.7%
    Depreciation 914 945 3.3% 3,634 3,737 2.9%
    Profit before Tax -2,374 -1,305 -45.1% -7,790 -6,528 -16.2%
    Tax (969) (501) -48.3% (2,864) (2,410) -15.9%
    Profit after Tax/(Loss) (1,405) (803) -42.8% (4,925) (4,119) -16.4%
    Net profit margin (%) -12.1% -3.9%   -9.2% -5.1%  
    No. of Shares 792.2 1,759.6   792.1 1,759.6  
    Diluted Earnings per share*            
    P/E Ratio            

    In FY03, operating margins of the company declined by about 110 basis points. This was on account of increase in raw material expenses. While the crude prices strengthened in FY03, the increase in crude prices was on a higher rate as compared to that in petroleum product prices. It should be noted that raw material as a percentage of net sales increased from 90% to 94% in FY03. This led to the decline in operating margins. Other expenses increased in the fourth quarter on account of provisions made for matters relating to excise duties, CST and other claims in previous years.

    However operating margins increased in 4QFY03 by about 390 basis points. This is mainly on account of reduction in raw material cost as a percentage of sales (decreased from 110% to 90%). This, we believe is on account of increasing capacity utilization leading to better operational efficiency. Apart from increase in topline and improving operational efficiencies, the reduction in interest expenses further added to reduction in net losses as compared to FY03. The company has started a debt-restructuring package by allotting equity shares of Rs 3.56 bn and preference shares worth Rs 92 m to its lenders. This apart, term loans have been restructured at prevailing lower interest rates. Thus, MRPL managed to reduce the net losses in FY03 by 16%.

    % of net sales 4QFY02 4QFY03 FY02 FY03
    Stock in trade -21.6% -5.2% -2.5% -1.1%
    Raw material 110.3% 90.1% 90.1% 94.1%
    staff costs 0.6% 0.3% 0.5% 0.3%
    Other Exp 9.6% 9.8% 8.0% 3.8%

    Apart from the improvement in performance of the company in FY03, MRPL has also witnessed a change in management. ONGC had recently acquired 37.4% stake in MRPL from the A. V. Birla group. Now ONGC has a stake of over 51% in the company. The change in management and improved performance has significantly benefited the retail shareholder as is apparent from the gains the MRPL stock has made in the last one month.

    Going forward the company's relationship with ONGC is expected to be beneficial. Case in point, the company expects to process an additional 3 m tonnes of crude coming from Sudan oil field. This will significantly increase the capacity utilization to about 100% in FY04. Also, ONGC is expected to come up with retail outlets of its own and this will provide stability to MRPL's business going forward. MRPL is currently a sick company. However, going forward, with improved operational efficiencies the company is expected to pare down its losses further. That said a high level of debt on the company's books still remains a concern.



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