The stocks of the two major petrochemical companies have performed in complete divergent ways. While Reliance Industries has steadily gained, Indian Petrochemicals has been battered by the bourses.
At the beginning of FY00, RIL was trading at a P/E multiple of 10 on FY99 earnings while IPCL was trading at multiple of 120. IPCL enjoyed such a large multiple, despite reporting poor results, due to the expected disinvestment.
At the start of FY00 there was news of due diligence being conducted and only the bidding process remained. Consequently, the market was awaitng Government disinvestment from IPCL at an expected price of Rs 120. Therefore the stock ruled at such high levels.
With the Government vacillating on the process the market has re-rated the stock on fundamentals and is sceptical to take a call on Government action. As a result the stock has declined to Rs 58 and is trading at a multiple of 10.2 on 1QFY01 annualised earnings.
On the other hand, RIL at the start of FY00 was trading at a multiple of 10 on FY99 earnings. For FY00 it reported a an EPS growth of 40%, which percolated to the stock price. It has continued on the growth path by reporting a 20% increase in EPS and trades at a multiple of 14 on 1QFY01 annualised earnings.
Over the past few months Reliance has announced plans to enter into a number of emerging sectors. These initiatives should help the company sustain their growth rate. For FY01, the company also plans to consolidate its balance sheet with that of Bombay Surburban Electricity Supply (BSES) and Reliance Petroleum (RPL) on equity accounting basis. This should see the bottomline grow by approximately Rs 7.5 bn.
With the disinvestments factored out and if IPCL can pull up its socks we can expect the stocks to show some similarity in movement.
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