The company has survived mainly on the basis of recovery from the Oil Coordination Committee (OCC), which rose from Rs 44.83 crore to Rs 113.20 crore. On account of oil bonds of around Rs 1,200 crore, the company has received interest worth Rs 100 crore, which has been the reason for the jump in other income.

MRPL, like other refineries in the country, has been affected by the deregulation in the oil sector. As part of the first phase of deregulation, prices of petroleum products have been decontrolled. Further refinery profitability is now governed by the difference between tariff-adjusted import-parity price for controlled products coupled with market-determined prices for decontrolled products and the landed cost of crude oil.

Theadministered price mechanism (APM), which assured a 12 per cent post-tax return, has been done away with. This is causing havoc for refineries, as international product prices are near their decade's low. Realisation on these products have come down substantially, against when they were enjoying assured returns.

MRPL, being a sole refiner with no right to market its product and one of the newer plants in the sector as compared to other players in the industry, is more adversely affected.

On the operational front, however, the company has done well. For the first half, it has reportedly achieved a throughput of 2.68 million tonnes on an installed capacity of 3 million tonnes. For 1997-98, the company had achieved a throughput of 3.953 million tonnes. "MRPL is of the most modern refineries in the country today, and the first refinery to have both a hydro-cracker and a continous catalytic reformer," says Arup Ganguly, analyst with Anand Rathi & Co.

With flexibility to use a variety of crudes, the companyis able to increase its throughput, as heavier crudes result in lower throughputs, he adds. Thus, the ongoing expansion, likely to be commissioned in the second quarter of 2000, will augur well for the company.

Ironically, higher throughput by the company will be more beneficial for Hindustan Petroleum (HPCL) than for MRPL, as HPCL has the marketing rights. Margins in marketing are substantially higher than in refining.

But on the flip side, there is the threat of a massive equity dilution to the tune of Rs 726 crore as a result of conversion of debentures in December 1998. The conversion will not result in any cash flow except for a saving of Rs 50.82 crore on interest outgo. It will be more than compensated by redemption of 16 per cent and 17.5 per cent debentures and loan repayment resulting in a cash outflow of Rs 186.43 crore.

Against the required debenture-redemption reserve of Rs 485.2 crore as on March 1998, the company has created a reserve of only Rs 110.33 crore owing to non-availability ofprofit. In other words, there is little scope of the company paying dividends for the next few years.

The company is likely to benefit from the government's announcement of allowing private and joint-venture companies to procure their crude requirements. To this extent, it company will benefit, as it will be in a position to import the kind of crude best suited for its plant.

On the financial front, a look at the annual report justifies the low discounting enjoyed by the company. MRPL has not accepted the provisional retention margins by the OCC, which has been revised downwards for the financial year 1995-96. As a result, the company has not made any adjustments for the said years, which has resulted in the profit for the year being overstated by Rs 131.46 crore.

There is little scope for any improvement in its financial performance for the next two years, as crude-oil and petroleum-product prices are likely to remain low.

The only way the company's margins can improve is by allowing it to market itsown product. Though the investment required will be high, it will be prove to be beneficial in the long run.

MRPL is contemplating making an investment in setting up a Mangalore-Bangalore pipeline, which should be a major boost for its marketing efforts. To put it in a nutshell, the company is worth staying away from till the time it is allowed to market its product.