Awaiting the switchover to BS-VI fuels

An ebb in domestic demand forces MRPL to export ultra low sulphur grade diesel. (DH Photo)

New units and facilities to produce BS-VI compliant fuel, a desalination plant and fixing the logistics are some of the areas the Mangaluru based Mangalore Refinery & Petrochemicals Ltd (MRPL), an ONGC subsidiary, is focussing on, in the coming quarters.

The company has started to produce BS-VI grade diesel and petrol, which will be available in the retail outlets of oil marketing companies in the state by March next year, M Venkatesh, Managing Director of the company told DH.

He said, “We have switched to the production of BS-VI fuel by September. This will ensure that we can retail it by March next year. BS-VI has less sulphur and will help in reducing sulphur oxides by about 80%.”

The company, a mini Ratna in government-run PSU parlance, had recorded a net loss of Rs 574 crore in the second quarter of FY20 against a loss of Rs 81 crore in the year-ago period.

The firm had also reported a dip in its gross refining margin to $0.68 a barrel as against $4.41 a barrel last year. Gross refining margin is the margin between crude price and the price of fuel.

Venkatesh says, “The dip was caused mainly on account of the shutdown of one of our units, following heavy rains in coastal Karnataka. It resulted in landslip near the pipe-rack, and we had to undertake a structured shutdown from August 18 for almost a month.”

MRPL’s gross revenue from operations also saw a dip, standing at Rs 15,262 crore in the September quarter against Rs 17,733 crore in the year-ago period.

The company said that the throughput (rate of production) at the refinery during the second quarter stood at 3.68 million tonnes as against 3.91 million tonnes in Q2 of the last fiscal.

However, with the plant running at full capacity now, Venkatesh is confident of the company making a turnaround. “We are working at full capacity and hope to see a jump in revenues in the upcoming quarters. Our goal is to increase our GRM levels.”

History

Before acquisition by ONGC in March 2003, MRPL was a joint venture Oil Refinery promoted by Hindustan Petroleum Corporation Limited (HPCL) and the AV Birla Group.

It was set up in 1988 with an initial processing capacity of 3 million metric tonnes per annum that was later expanded to about 15 million metric tonnes per annum presently. In July 2003, ONGC acquired the total shareholding of the AV Birla Group and infused equity capital of Rs 600 crore.

MRPL, with its parent company Oil and Natural Gas Corporation Limited (ONGC) owns and operates ONGC Mangalore Petrochemicals Limited (OMPL), a petrochemical unit.

In its annual report, MRPL had stated that the company processed 16.23 million tonnes of crude during FY19, against 16.13 million tonnes in FY18. The total input to the refinery stood at 6.43 million tonnes.

The company also said that it had included newer crude grades in the processing basket to diversify crude sourcing.

The report adds that MRPL exported approximately 18,567 MT of Polypropylene during FY19 up from 7,520 MT in the last fiscal.

An analyst report by Kotak Securities is fairly optimistic about the company and says, “During FY16-19, MRPL’s RoE (Return on equity) had remained in a wide range of 3.3-41.6% range. In FY19, ROE declined to 3.3% from 19.6% in FY18 due to lower operating margin and lower PAT/EBIDTA. We expect improvement in ROE going forward with the improvement in GRMs.”

However, the report also states, “Wide fluctuations in crude, forex and product prices can impact the margins. If global supply exceeds demand, then margins can be under pressure. Any delay in executing the project can significantly impact the valuations.”

What is it working on?

Apart from building infrastructure and ensuring that the supply of BS-VI can start by March. It is setting up a seawater desalination plant near the New Mangalore Port (NMPT) for the supply of industrial quality water, which will help in reducing the water supply risk.

“Issues with water supply was also one of the main reasons for the drop in margins in the last quarter. We are investing about Rs 640 crore in this venture,” points out Venkatesh.

wIt is presently dependent on river water to meet its operational needs. The plant is scheduled to be completed next year.

The company believes that the new desalination plant with a capacity of 30 million litres per day (expandable to 70 mn litres per day) will cater to future water requirements.
Moreover, MRPL plans to set up a 2G ethanol project in Karnataka in an attempt to reduce the import dependency of crude oil. 2G Ethanol is produced from agro residues such as corn cobs, rice straw and so on. Land for the project has been allotted by KIADB at Harihara in Davangere.

Retail move

The company has recently commissioned a new retail outlet at Gubbi in Tumakuru and plans to set up new retail outlets in Karnataka and Kerala. In H2FY19, the Continuous Catalytic Reforming (CCR-2) unit was revamped, commissioned and is currently operating at full capacity. MRPL plans to use the Indian Railways to manage petcoke logistics.

“Dispatches by railway wagons will make MRPL products conveniently available in competitive markets and improve commercial realisation.”