Mangalore Refinery and Petrochemicals Ltd (MRPL), a 71% subsidiary of ONGC, is all set to complete its long drawn US$2.4bn capacity expansion program at its refinery. Post completion the refinery 1) will have a nameplate capacity of 15 million tons per annum (mtpa) as compared to 12mtpa earlier, 2) the nelson complexity index of the refinery will increase from 6 to 9, 3) jump in distillate yield of the refinery, 4) will have capability to produce value added products from the heavier ends. These will translate into a GRM improvement of US$3‐4/bbl over a period of two years. While the outlook for GRMs at the global level is muted, MRPL will post a relatively better growth in earnings on the back of higher margins from expanded capacities. At FY15E EV/EBIDTA of 4.4x, the stock is attractively valued when compared with regional peers. We initiate coverage with a BUY rating and a 9‐month price target of Rs 51.
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