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RPL: Valuation in question - Views on News from Equitymaster
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  • Feb 9, 2001

    RPL: Valuation in question

    Reliance Petroleum Ltd. (RPL) is a flagship of the Reliance group. The company boasts of setting up the largest grassroot refinery and the seventh largest refinery at any single site in the world. The company has achieved many other firsts.

    RPL in its maiden nine months performance has already reported the highest turnover by any Indian private sector company over the concerned period. It comes in second only to its parent, Reliance Industries Ltd. (RIL), in terms of net earnings.

    Its impressive financial performance has been fueled by a superior operating environment. The group's exemplary execution skills has enabled RPL to set up a state of the art, 27 m tonne, refinery in record time of 36 months. Further, the refinery has been structured in such a way that it can distill all types of crude from sweet to sour grade. With greater secondary processing capability the company can produce a larger share of higher margin (light - middle distillates) products. Consequently, the company enjoys higher operating margins than its peer group.

    CMP* Rs 197 178 169 9 64 35
    Market Cap Rs bn 67 53 132 7 305 5
    Sales*** Rs bn 480 445 1,158 50 313 14
    EPS Rs 29.9 29.3 38.2 (5.3) 3.3 3.5
    P/E 6.6 6.1 4.4 - 19.6 10.0
    Mkt cap / sales 0.14 0.12 0.11 0.14 0.98 0.22
    CMP/BVPS 1.2 1.5 0.9 1.3 4.7 2.0
    Refining capacity MMTPA 13 7 36 6 27 66
    Mkt Cap/ tonne Rs 5,136 7,607 3,707 1,179 11,310 76

    All these factors could have contributed to the relatively higher valuations (vis–a–vis it's peers) enjoyed by the company. In fact, RPL has climbed its way into the top five companies ranked on the basis market capitalisation. However, despite its superior operating and financial performance there could be a case of the stock price being out of line from its fundamentals.

    On the basis of certain valuation parameters examined, RPL exceeds its peers group on all these metrics. This is despite the company not having a marketing set up as compared to its domestic peer group.

    Tosco is a pure refining and marketing (R&M) company in the U.S, which was currently acquired by Phillips Petroleum. Even on comparing RPL with players in the international markets there seems to be some disparity in valuations.

    The stock has been climbing consistently for the last six months. It may, however, be time to adopt a more cautious approach.



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