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Reliance: Fairly priced? - Views on News from Equitymaster
 
 
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  • Mar 13, 2001

    Reliance: Fairly priced?

    Reliance Industries Ltd (RIL) has run up significantly over the last five months since it dipped below Rs 300 in October 2000. Since then the stock has gained 42.8%. In the current slide, while the sensex lost 9.9% Reliance has fallen 6.6%.

    The stock started its climb in mid-October, however, interest in the counter took off after the second quarter announcements. Despite, the difficult industry scenario of high feedstock prices the company came in with 20% post tax growth in the first two quarters. Also, the quality of earnings have improved with other income falling substantially as foreign monetary assets have declined.

    (Rs m) Reliance DuPont Dow
    CMP 406.2 2,190.2 1,657.7
    Sales 203,013.9 1,357,621.4 1,320,414.0
    Operating profits 51,125.2 268,036.2 133,362.0
    PAT 28,009.8 126,968.3 77,887.5
    No. of shares 1,053.4 1,038.5 1,113.9
    EPS 26.6 122.3 69.9
    BVPS 155.5 579.4 614.7
    P/E 15.3 17.9 23.7
    Price / book value 2.6 3.8 2.7
    M Cap 427,838.4 2,274,558.4 1,846,473.6
    M Cap / sales 2.1 1.7 1.4
    EV 532,225.3 2,284,542.4 1,855,245.6
    EV / EBITDA 10.4 8.5 13.9
    OPM 17.8% 19.7% 10.1%
    NPM 9.8% 8.9% 6.2%

    With the fresh slide on the U.S bourses the markets seem to have taken refuge in the old economy counters. The international counterparts of Reliance have risen by 10% over the last month. As domestic bourses undergo a similar experience markets here too are reacting similarly rebalancing their portfolio in favour of fundamentally strong companies.

    The post tax profits and operating profits of Reliance Industries has grown by a CAGR of 34% and 24% respectively over the last ten years. However, over the last six years PAT has grown by 14.5% CAGR and operating profits by 21% CAGR. In the last six years Reliance has traded at an average earnings multiple of 15.

    It seems the markets have historically fairly priced this stock based on the expected earnings growth. Between FY91 and FY95 the company's bottomline grew by 53% CAGR . Consequently, the stock traded at higher multiples. At the current price it is trading (historically) near its highest valuations.

     

     

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