MRPL Upgraded to ACCUMULATE: Target Price Rs169 Amid Chemical Expansion Plans

We upgrade the stock from ‘Sell’ to ‘Accumulate’ with target price of Rs169 taking into account MRPL’s future foray into chemicals. As part of strategic diversification, MRPL is venturing into the better margin yielding chemicals space to valorize its C2-C4 streams. The company plans to establish a pilot 200mtpa Iso Butyl Benzene (IBB) plant by Q1FY26. IBB is widely used in painkillers and the perfume industry. Chemical projects generally offer an EBITDAM of 20-25% as compared to refining, which is in single digits. Thus, the foray into chemicals will help MRPL improve its profitability. Currently, GRMs are at the lower end of the cycle, ~US$3/bbl, due to excess supply. We expect GRMs to revert to long-term average of US$5-7/bbl, which would also aid earnings. The company is currently trading at 6.3/5.9x FY26/27 EV/EBITDA. We value the core refining business at Rs124 based on 6x avg FY26-27 EV/EBITDA and add option value of Rs45 for its chemicals foray to arrive at our target price of Rs169.. Upgrade to ‘Accumulate’. Key risks are delay in chemicals projects and sustained poor GRMs.

Chemicals business to see good growth: Due to poor profitability in refining, refiners are improving O2C conversion. With products like poly-butadiene, MTBE/ETBE, octane, maleic anhydride, SBA/MEK, alkylates, LLDPE, TBA, polyisobutene, C2-C4 streams ex-FCCU offer profitable forays into chemicals. MRPL has identified opportunities for valorization of its C2-C4 streams. Although feasibility studies are still ongoing, we understand that the typical refinery configuration would give 150tmtpa of end products.

Pilot IBB Project: MRPL is setting up an IBB plant. An API and a key input for pain killers as well as ingredient in perfume industry. IBB would be manufactured with the captive feedstock available with MRPL. The pilot plant will have a capacity of 200mtpa, and mechanical completion of the project is expected in Q1FY26. At an average realization of Rs175/kg across possible products from total C2-C4 streams, assuming a capacity of 150tmtpa with an EBITDA margin of 20%, we get an incremental EBITDA of ~Rs5bn.

Valuations: India is dependent on imports for chemicals. Thus, there is significant scope for import substitution, and MRPL’s foray into chemicals will help the company to leverage the opportunity. We are currently valuing the core refining business at Rs124 based on 6x avg FY26-27 EV/EBITDA. Assigning a 15x multiple to its foray into chemicals, we arrive at an option value of Rs45. Thus, TP comes to Rs169 and we upgrade to ‘Accumulate’.