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OMPL-MRPL merger: On the industry's watch list
Dec 02: The Indian refining and petrochemical industry is watching with much interest the on-going merger process of OMPL with Mangalore Refinery & Petrochemicals Limited (MRPL).
8The general expectation is that the merger will benefit both the entities given the synergies between their operations.
8The key feedstock (i.e. naphtha and aromatics streams) for the operations of OMPL is sourced from MRPL, which would be met captively post the amalgamation. It would also provide flexibility to the management in sourcing of crude so as to maximise the yield depending upon the market dynamics and crack spread available for the respective products.
8With the amalgamation, the plants of MRPL and OMPL can be operated at optimum utilisation to allow for optimisation of Gross Refining Margin (GRM) and maximisation of combined margins.
8However, the merger process has been delayed due to pending regulatory approvals. Meanwhile, OMPL has reported sizeable losses post-commissioning on a standalone basis, leading to significant erosion in its net worth.
8The completion of the merger in the near term remains critical for OMPL to benefit from the combined synergies and improve its financial profile.
8OMPL will now have low feedstock supply risks owing to the adjacent operating refinery of MRPL and the healthy demand indicators globally for the company’s key products, i.e. paraxylene and benzene. The market risks are expected to further reduce for paraxylene with the setup of a new downstream facility by JBF Industries Limited in the company’s vicinity in the near term. The company also benefits from its presence in Mangalore SEZ which would result in lower taxation in initial years of operations apart from other fiscal incentives.
8But the worry is that the company’s profitability is exposed to the movement in the crack spreads between naphtha/aromatic streams and the finished products which are highly volatile and cyclical in nature, as well as to import duty differentials between finished products and feedstock, and exchange rate movements.
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