The integrated petrochemical major, Reliance Industries (RIL), recently declared audited financial results for the year ended March '02. Post announcement the scrip has declined to Rs 240 levels after having clawed its way to Rs 270 levels in the previous month. The consolidated results have come in below street expectations. At time of unaudited results for FY02, the company declared consolidated profit at Rs 36.8 bn with per share earnings (EPS) at Rs 34.9.
Based on these numbers, markets are likely to have expected audited EPS to be in proximity of unaudited figures. Having said that, unaudited consolidated results were based on equity accounting method (%share in performance of subsidiary & associate companies) with Reliance Petroleum being the largest contributor. With merger between RIL and RPL still pending approval from high courts, it was prudent for the company not to pre-empt the courts by declaring merged results, which has contributed to variance in numbers.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Income from assc./share of MI
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares
Diluted Earnings per share*
At time of announcement of merger, based on 9m FY02 annualised results, we had reported a merged EPS of Rs 27.2. On merger, share capital of RIL has increased by 3.4 bn leading to dilution in EPS. Depreciation and tax has increased considerably pulling down consolidated earnings. Further, unaudited results also included associate companies, which have not been accounted for in audited results. Expected vehicle for power sector ventures, BSES -- an associate company -- added to the unaudited bottomline. Exclusion of associate companies from audited results has raised investors' eyebrows.
The RIL scrips tends to trade in a valuation band of 10x-15x earnings. With the petrochemical cycle weakening the outlook for the company in FY03 remains challenging. Trailing 12 month average product prices for October '02 are lower across the board, except for polypropylene (PP) and poly vinyl chloride (PVC). Products prices have been weakening, month-on-month, for the past two months. However, average prices for quarter ended September '02 are higher YoY. Consequently, while volume growth could be subdued, realisations could offer buoyancy in sales for 2QFY03 petrochemical sales. In the refining business, we reckon, product prices YoY to have risen marginally, as crude prices for the concerned period were higher by 6%. But refining margins are likely to be have declined.
International integrated majors, though having substantial oil & gas revenues, tend to trade on valuations between 15x-20x earnings, as diversification across the petroleum chain reduces volatility in earnings. RIL could trade at mid-cycle (petrochemical) valuations. However, with RIL likely to enter a capital intensive phase -- oil & gas exploration & production, roll out of petroleum marketing network, establishing pan-India broad band network and opportunities from privatisation -- and lack of clarity on the same, markets are cautious on the stock. The petrochemical and refining cycle is likely to remain weak for FY03.
More Views on News
Sorry! There are no related views on news for this company/sector.
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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407