MRPL: Weak global cues, shutdown may impact profits in Q4

MANGALORE Refinery and Petrochemicals’ (MRPL) December 2009 quarter results turned out to be better-than-expected. The company was expected to post profits over December 2008 quarter losses, but its performance over the September 2009 quarter is what has surprised the market, given the weak refining environment. MRPL reported a net profit of Rs 259.5 crore in December 2009 quarter compared to a loss of Rs 285 crore in December 2008 quarter.
Higher inventory gains, processing of low-cost Cairn crude oil and improved capacity utilisation proved to be the main factors contributing to higher gross refining margins (GRM), while forex gains added to the bottomline. With oil prices steadily moving up, MRPL made an inventory gain of $2.53 per barrel in December 2009 quarter, higher than in September 2009 quarter. The inventory valuations had crashed in December 2008 quarter along with oil prices leading to loss of $14.4 per barrel. The GRM for December 2009 at $4.51 per barrel was higher than $3.59 of September.
The company also processed Cairn’s Rajasthan crude oil for the first time during the quarter, which came in at a 10-15% discount to benchmark Brent prices. Although the share of Rajasthan crude was around 3% in the 3.4 million tonne of crude oil processed during the quarter, it helped boost margins.
In an otherwise weak economic environment, the company also raised its capacity utilisation to improve profits. As a result, the sales volumes during the quarter moved up 11.7% against the year ago period to 3.28 million tonne.
With the rupee appreciating during the quarter, MRPL booked a gain of Rs 153.1 crore as against a loss of Rs 78.8 crore in the corresponding quarter of last year.
In a weak market, the MRPL scrip shed 3.1% to Rs 86.25 before the results were announced. Factoring in for the December 2009 quarter earnings, the scrip is now trading at a price-to-earnings multiple of 10.3.
The persistent weakness in the global refinery industry and the company’s planned 35-day shutdown in the fourth quarter of FY10 will impact MRPL’s profits, going forward. As a result, the upside from current levels appear limited in the short run.