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RIL: Fundamentals take back seat

Dec 7, 2001

Over the past few trading sessions, both the Reliance Industries (RIL) & Reliance Petroleum (RPL) scrips have been attracting immense interest. From the lows of September '01, the RIL scrip has bounced back by 52.4%, breaching the pre-September 11 levels this week. The BSE Sensex, over the same period, has run up by 31.1%.

The downturn in the global economy leading to weakness in the petrochemical cycle and a simultaneous slow down in the domestic market is making life tough for RIL. In 2QFY02, the company reported lower sales by 5.5% excluding merchant sales in the previous year. The environment for the petrochemical industry, especially downstream, does not seemed to have changed dramatically.

Prices: Weakness prevails
MoM** QoQ* YoY*
POY 0.9% -10.1% -15.1%
PSF -2.2% -8.8% -16.3%
PTA -5.2% -7.2% -17.2%
MEG -5.4% -10.8% -19.4%
PE -5.0% -5.2% -17.1%
PP -7.1% -1.1% -12.9%
PVC -11.7% -1.5% -22.6%
PET -5.2% -2.8% 1.8%
LAB 0.0% 0.0% 0.0%
*avg prices for a quarter **Month on month
The company recently announced product prices for the month of December '01. Key product prices have fallen across the board. Prices have been cut substantially, as compared to last month. The move, it seems, is to revive the sluggish demand in polyesters and re-capture market share in polymers. RIL had reported a drop in market share for polymers and polyester intermediates. The stabilization of operations at Haldia Petrochemicals Ltd. and the subsequent filling up of capacity could have eaten into the polymer market share, especially in the Eastern region. Competition in polyester intermediates, PTA (purified terephthalic acid), has intensified with the Mitsubishi plant ramping up utilization rates. The sharp drop in prices seem to reflect the difficult business environment.

The polyester business is likely to be under severe strain. The cotton crop, a substitute product, has reportedly registered a bumper year, which has led to softness in prices. With a decline in prices there could be shift towards cotton wear. This is likely to keep polyester prices under check.

Based on these number, the current quarter is likely to be equally, if not more, challenging for the company compared to the preceding quarter. Also, 3QFY01 was the strongest quarter with the company reporting its highest operating and net profits for fiscal '01. This could lead to a higher YoY effect.


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