Asit C. Mehta puts hold on MRPL at Rs 93

Asit C. Mehta puts hold on MRPL at Rs 93
21 Feb, 2008, 1223 hrs IST, INDIATIMES NEWS NETWORK

MUMBAI: Asit C. Mehta has initiated coverage on Mangalore Refinery and Petrochemicals with a ‘hold’ recommendation and sets the target price at Rs 93. The global demand for petroleum products grew from 83.7 million barrel per day in FY05 to 87.8 mbpd in FY07, CAGR of 2 per cent. Demand for petroleum products are expected to increase at the same rate, CAGR of 2 per cent over period of 2006 to 2010, which will be mainly driven by China, India, and the Middle East.

With the domestic projects coming up, the total domestic refining capacity is set to increase from 145.96 mmtpa in 2007 to 237.95 mmtpa by 2012 creating a net surplus of 91.94 mmtpa. Domestic demand for petroleum products is expected to grow at a CAGR of 3.3 per cent, while supply is expected to grow at a CAGR of 7.9 per cent by 2012. This scenario leads to higher exports opportunity of petroleum products for India.

MRPL with its upgradation and expansion projects lined up, will add capacity of another 5.31 mmtpa from the present level of 9.63 mmtpa by FY11. This project is expected to improve distillate yield by processing high quality crude. Higher demand of quality petroleum products in international market will generate more revenue from exports and this will lead to higher profitability and better refining margins for MRPL, Asit C. Mehta said in its report.

Change in fuel specification norms to Euro III/IV grade of petrol and diesel would lead MRPL to enjoy better sales and superior margins in the lighter and middle products. Domestic as well as international markets like Europe and US have higher demand for such kind of petroleum product, says the brokerage.

Asit C. Mehta has arrived at a price target of Rs 93 by assigning multiple of 7x for FY10E EBIDTA considering its international peers.