• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Raghuvir Srinivasan

Having staged a turnaround in 2003-04, the company is now all set to wipe out its accumulated losses this fiscal.

INVESTORS with a medium-to-long-term perspective can consider investing in the Mangalore Refinery and Petrochemicals (MRPL) stock.

Having staged a turnaround in 2003-04 by registering its first profits in several years, the company is now all set to wipe out its accumulated losses this fiscal.

The stock appears set for a re-rating in the near term as the company sheds its baggage and gains strength in its core business.

The first nine months of this fiscal have proved to be good for MRPL. It registered a post-tax profit of Rs 568.9 crore compared to a loss of Rs 91.7 crore in the same period in 2003-04. The accumulated loss of Rs 627 crore as of March 31, 2004, may well be wiped out in this fiscal.

The company has also managed to scale down its mounting debt that was casting a long shadow on its finances.

The financial assistance from parent Oil and Natural Gas Corporation (ONGC), which lent MRPL Rs 2,400 crore last year at a concessional rate of interest, helped the latter discharge a part of its high cost debt.

Thanks to healthy cash generation this fiscal, MRPL has managed to pay off a part of the loan from its parent. The company repaid Rs 450 crore to ONGC bringing down its dues to the parent to Rs 1,950 crore now.

The prepayment of costly debt helped the company control the spiralling interest cost that was weighing down the bottomline. Indeed, interest cost fell by a sharp 42 per cent in the first nine months of this year to Rs 181 crore.

As a result of the debt restructuring done by the company in the last couple of years, the debt:equity ratio has now come down to a manageable 3:1 and appears set to improve further as the company continues to prepay its outstanding loans.

Fortunately for MRPL, the restructuring coincided with a period of high refining margins as oil prices soared in the global markets.

With the state-of-the-art refinery and efficient managerial inputs from ONGC, MRPL managed to make the most of the boom in the oil market.

Capacity utilisation was consistently above the 100 per cent mark for the first time in the company's history and against a slated capacity of 9.6 million tonnes, MRPL is expected to end this fiscal with a crude throughput of close to 12 million tonnes. MRPL also optimised its crude oil basket by including crude from the Mumbai High fields of ONGC, which helped it to not only reduce costs but also change its refinery yield pattern for the better.

The company, whose products are now marketed by the three majors — Indian Oil, Hindustan Petroleum and Bharat Petroleum — along with Shell India and Essar Oil, has got a licence from the Government to set up 500 retail outlets of its own. Of course, given that its financial position is just improving, the company may not venture into the retail business immediately.

While these are the positives, there are a couple of worries as well. First, the restructuring of the duty structure in the recent Budget is likely to have a minor adverse impact on the refining margins of MRPL. Import duties across the entire petroleum product range have come down along with that on the raw material, crude oil.

Second, though the company has discharged a large part of its debts, it still has more than Rs 4,500 crore outstanding, some of it in foreign currency.

Therefore, a continuation of the good times in terms of refining margins is necessary for the company to generate adequate cash to prepay its debt and bring it down to normal levels.

This, in turn, rests on the direction of global oil price movements — the stronger the price, the better it is for refining margins.A decision is also due on the issue of ONGC buying Hindustan Petroleum's 17 per cent stake in the company.

Once that happens, an eventual merger of MRPL with ONGC is a possibility. Investment in the stock should be considered by those willing to stay with it for returns in the medium-to-long-term.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Tax savings — Higher returns, optimal portfolio

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line