MRPL & RPL - Analyzing Risk and Returns

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Case Details:

Case Code : FINC027
Case Length : 12 Pages
Period : 1993 - 2004
Pub. Date : 2004
Teaching Note :Not Available
Organization : Mangalore Refinery and Petrochemicals Limited (MRPL) and Reliance Petroleum Limited (RPL)
Industry : Petroleum and Finance
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts

Financial Performance

MRPL

MRPL completed its first full year of operations in the financial year 1996-1997. The refinery operated at a capacity utilization of 93.5% during this period.

The company earned a net profit of Rs. 905 mn in the very first year of its operations. However, during the financial years 1999-2000, 2000-2001 and 2001-2002, MRPL suffered significant losses (Refer Table I for the financial results of MRPL). The company's debt to networth ratio rose from 5.61 in the financial year 1999-00 to 7.88 in 2000-01, to as high as 16.13 in 2001-02. MRPL also witnessed an increase in the expenditure on raw materials mainly due to the increase in crude oil prices. This increase in cost resulted in a reduction in the company's margins. According to analysts, the dismantling of administered pricing mechanism was also expected to affect MRPL adversely, since its average cost of production was higher than that of other refineries...

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

The Stock Market Perspective

According to stock market analysts, the share price of a company usually provided a true reflection of the company's present and expected financial performance.

The stock price usually reflected various risks associated with the company, which could be broadly categorized as systematic and unsystematic risks (Refer Exhibit IV).

An analysis of the stock price performance of MRPL and RPL would help investors analyze the quantum of returns offered to them and identify the extent of risks associated with these companies over a specified period of time.

The quarterly share prices of MRPL and RPL between 1996 and 2002 are provided in Table III to help measure the risks and returns of these two companies...

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