MRPL, Chennai Petroleum shares jump up to 16%; here is why

Shares of Mangalore Refinery and Petrochemicals Ltd (MRPL) and Chennai Petroleum Corporation Ltd moved higher in Monday's trading session.

MRPL's stock surged 16.18 per cent to close at Rs 206.80, while Chennai Petroleum climbed 7.70 per cent to Rs 988.60.

Elara Capital, in a recent report, highlighted that standalone refiners would benefit the most from rising crude prices.

"Industry GRM (Gross Refining Margin) would rise ~$5/bbl for every $10/bbl spike in crude – These companies do not have to absorb retail fuel losses," the brokerage said.

It also mentioned that MRPL and Chennai Petroleum could see robust EBITDA expansion but carry policy risk.

"Under our stress cases, MRPL (MRPL IN) and Chennai Petroleum (MRL IN) would post very strong EBITDA expansion. However, very high GRMs often attract policy attention. If spreads are elevated for long, windfall duties or other policy interventions cannot be ruled out. So, while near-term earnings are strong, policy risk would rise with margin expansion," Elara stated.

Additionally, the brokerage noted that oil marketing companies (OMCs) are the hardest hit amid high crude prices.

"Higher GRMs can partly offset retail margin collapse and rising LPG loss. At current Brent of $100/bbl, earnings could drop sharply ~90-190 per cent absent retail price hike, tax cut, or higher LPG subsidy. Among OMCs, HPCL & BPCL are most exposed due to their higher retail volume relative to refining capacity. IOCL is better placed among OMCs due to higher refining share, but still vulnerable if crude stayed high and retail price unchanged," Elara stated.

The brokerage added that OMCs and LNG stocks with high dependence on the Strait of Hormuz are the most vulnerable in a sustained high-crude scenario.