X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
RIL: Signaling entry into EPC? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Nov 20, 2001

    RIL: Signaling entry into EPC?

    The Reliance Industries Ltd. (RIL) scrip shot up dramatically in yesterday's trading session crossing the psychological barrier, if you will, of Rs 300. Investors took to the stock, as the management announced sale of stake in Larsen & Toubro (L&T) for Rs 306.6 per share to Grasim Industries Ltd., the A.V. Birla group major. Realisation per share was at a premium of 47% to L&T's last traded price.

    As on March 31, 2001, RIL and its 100% subsidiary, Reliance Industrial Investments & Holding Ltd. (RIIHL), together held 16.5 m (6.6% stake) shares of L&T. Subsequently, in the current fiscal, RIIHL holdings in L&T were transferred to RIL. Also, RIL acquired an additional estimated 8.4 m shares from the market during this period raising aggregate holding to 24.9 m shares or 10% the EPC & cement major's share capital. Therefore, the entire consideration from sale of stake is to accrue to RIL resulting in estimated capital gains of Rs 3.6 bn.

    Sale of L&T stake
    Shares Outstanding Nos. m 249.1
    Stake sold Nos. m 24.9
    Sale price/share Rs 306.6
    Realisation Rs m 7,635.9
    Capital gains Rs m 3,600.0
    Purchase price/share Rs 162.1
    Proceeds from the sale are most likely to be invested in new growth opportunities, which include oil & gas, infocom and marketing of petroleum products. The sale seems to perform two functions. One, it unlocks value in existing investments for RIL shareholders. Two, to that extent, parent company shareholders are not likely to be burdened with fresh investment calls to fund new projects. Also, the Reliance group has built up significant expertise in engineering, procurement & construction (EPC) after successfully completing large, capital intensive projects. Therefore, it may wish to commercially exploit these skill sets. The L&T stake is likely to have created conflict of interest, unless of course the Reliance group made L&T their entry vehicle in the EPC business.

    On an estimated capital gains of Rs 3.6 bn the per share acquisition cost of L&T works out to an estimated Rs 162. On a consolidated basis, the capital gains could be higher considering RIIHL also registers profits from the transaction. In the past week, the L&T scrip did witness frenzied activity leading to a 20% jump in value over two days. This is likely to attract the market regulator's, SEBI, attention towards any insider activity.

    The capital gains is likely to augment estimated pre-tax earnings, for FY02, by 13.2%. We had estimated RIL to register a 5% drop in bottomline for the current fiscal. However, assuming a similar effective tax rate, with the extra-ordinary income per share diluted earnings are likely to rise to Rs 27.1 in the current fiscal. The stock seems to have fully reacted to the improved prospects. We may see profit booking in the counter today.

     

     

    Equitymaster requests your view! Post a comment on "RIL: Signaling entry into EPC? ". Click here!

      
     

    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    RELIANCE IND. SHARE PRICE


    Aug 22, 2017 09:10 AM

    TRACK RELIANCE IND.

    • Track your investment in RELIANCE IND. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    RELIANCE IND. - IOC COMPARISON

    Compare Company With Charts

    COMPARE RELIANCE IND. WITH

    MARKET STATS