Sep 14, 2001|
RPL: Going out of favour
The most favoured refining stock, Reliance Petroleum Ltd. (RPL), has significantly under performed the markets. The private sector refinery, since start of the fiscal, has seen its scrip price dip by 33.4% as compared to a drop of 16.2% in the Sensex. Since the announcement of the company's proposed GDR offering the scrip has declined by 39.9%.
This underperformance could be due to the following reasons. The slowdown in crude throughput, which grew by 6.4% YoY in 1QFY02 compared to 34.5% is the same period last year, has continued into July '01 reporting a growth of only 2.5% YoY. Although, RPL, for the April - July period of the current fiscal has reported a throughput growth of 24.6% the growth has been slipping. This maybe due to a combination of factors. With operations stabilising over the past year benefits of efficiency YoY are going to reduce. Also, the slowdown in the sector could catch up with the company.
On May 18, '01 the company stated its intention to offer shares in the international markets, through the global depository route (GDR), to strategic or financial investors. As per the offering, the shareholders of RPL will have the opportunity to exit / dilute their holding in favour of GDR investors. The offering is to be made in one or more tranches to be completed by March '02, as per the press release. However, there is suspicion that the offering would be more towards the end of the fiscal, if not delayed. As per reports, Morgan Stanley Dean Witter (MSDW) was one of the lead managers to the issue. The company, MSDW, was the largest tenant in the World Trade Centre towers (New York), which was brought down to rubble by terrorist attacks. Consequently, the investment banker could face bottlenecks in undertaking roadshows for the issue in the city of New York.
Also, the terrorist attacks have led to a spike in the oil markets. This seems largely due to the uncertainty concerning the outfit involved in the attack. In the event any of the OPEC members are indicted there could be upward pressure on prices, as oil supplies could get hit. Either way, early pointers to the perpetrators indicate Central Asian terrorist outfits, which could lead to a disruption in oil supplies if retaliatory activity gets ugly. The resultant rise in feedstock -- crude oil -- prices could adversely impact operating margins of the company. Nevertheless, the company does enter into crude future contracts, which could help it ride over the current volatility.
RPL scrip, at time of the GDR announcement, was trading at Rs 53 on a multiple (PER) of 17.2x FY01 earnings. In terms of price to earnings ratio (PER), RPL was amongst the costliest refineries in the world. The GDR offering could have been postponed due to valuation concerns, as at that price it may not have found any takers. Internationally, integrated majors trade on a multiple between 12x - 17x. Whereas, refining & marketing (R&M) companies trade below 10x. In the domestic market, R&M majors trade on an average earnings multiple 5x. The high valuations did build in additional risk in the stock.
More Views on News
Mar 27, 2017
GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.
Mar 17, 2017
ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.
Jun 21, 2016
Should one subscribe to Mahanagar Gas IPO?
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407