Reliance Petroleum Valuation
Reliance Petroleum, RPL, entered into the capital market on April 13 with a public issue of 135 crore equity shares of Rs 10 each for cash at a premium to be decided through 100% book building route. Reliance petroleum will start its production in late 2008.So its first full financial year of production will be FY 2010.i.e. 1st April 2009 - 31st March 2010.
According to the official site, the production capacity of Reliance Petroleum will be 580000 barrels per day.The profits of RPL will depend mainly on two factors.
-International crude oil prices and petrol prices.
-Rate of Indian Rupee.
0.58 million barrels a day = 211.7 million barrels a year.
An optimistic view - Reliance will have GRM (Gross Refining Margins) of $14 a barrel and US $ will be at Rs 41. (Reliance's refinery had a GRM of $15 last quarter and this is the best ever achieved by it.)
This will take the gross profit figures to Rs 12151 crore a year.
Reliance Petroleum has 450 crore shares. Thus eps (am assuming using GRMs) would be around 27. Now how much PE should we give to a petroleum refinery? Other refineries in India are trading in the 5-8 band, see below:ONGC-17
BPCL-9
IOCL-10
CHENNAI PET-11
GAIL-18
HINDUSTHAN PET-9
Source: Rediff.
but lets give Reliance Petroleum a forward PE of 9 (An Average). In that case, the stock price would be around Rs 240 by March 2009.Now this is a modest view. There is a strong possibility of this happening. Rs 240 is the average limit I would put on the stock.For this to happen, both crude oil prices will have to come down and US dollar will have to remain where it is now at approximately $40.
If we assume GRMs to fall to $12 a barrel, US$ to be at Rs 36 and a PE of 8, the stock would be at Rs 160 in March 2009. (This is a more pessimistic target. RIL's refinery had a $12.4 margin last year.)
The US$ may be even lower than 36, but I think RPL will be able to maintain margins around $12 a barrel.A pessimistic view - $10 GRMs, USD at Rs 33 and PE of 8 => the stock would be at Rs 122 in March 2009.
There are lot of other factors that will decide the final profits, like the earnings of the Polypropylene plant, expenses, taxes etc. I am just making rough calculation from the GRMs.
Basically, the fortunes of Reliance Petroleum depends very much on the state of world economy. Considering the commodity prices are pretty high in world markets we expect the RelPet stock price to be in upwards range of Rs 225 to 260 at end of 2009. We will further revise our valuation by the end of this year. Please not that, the current stock moment is based on speculative news so please be cautious on short term bets.
We want the long terms buyers to buy this stock at Rs.180 range and stay in the market for up to one year and get a return of 40 percent in a year and half.
For the speculators buy at 190 and see at 230 in next three months. We expect Reliance petroleum to declare an early production start date.
According to the official site, the production capacity of Reliance Petroleum will be 580000 barrels per day.The profits of RPL will depend mainly on two factors.
-International crude oil prices and petrol prices.
-Rate of Indian Rupee.
0.58 million barrels a day = 211.7 million barrels a year.
An optimistic view - Reliance will have GRM (Gross Refining Margins) of $14 a barrel and US $ will be at Rs 41. (Reliance's refinery had a GRM of $15 last quarter and this is the best ever achieved by it.)
This will take the gross profit figures to Rs 12151 crore a year.
Reliance Petroleum has 450 crore shares. Thus eps (am assuming using GRMs) would be around 27. Now how much PE should we give to a petroleum refinery? Other refineries in India are trading in the 5-8 band, see below:ONGC-17
BPCL-9
IOCL-10
CHENNAI PET-11
GAIL-18
HINDUSTHAN PET-9
Source: Rediff.
but lets give Reliance Petroleum a forward PE of 9 (An Average). In that case, the stock price would be around Rs 240 by March 2009.Now this is a modest view. There is a strong possibility of this happening. Rs 240 is the average limit I would put on the stock.For this to happen, both crude oil prices will have to come down and US dollar will have to remain where it is now at approximately $40.
If we assume GRMs to fall to $12 a barrel, US$ to be at Rs 36 and a PE of 8, the stock would be at Rs 160 in March 2009. (This is a more pessimistic target. RIL's refinery had a $12.4 margin last year.)
The US$ may be even lower than 36, but I think RPL will be able to maintain margins around $12 a barrel.A pessimistic view - $10 GRMs, USD at Rs 33 and PE of 8 => the stock would be at Rs 122 in March 2009.
There are lot of other factors that will decide the final profits, like the earnings of the Polypropylene plant, expenses, taxes etc. I am just making rough calculation from the GRMs.
Basically, the fortunes of Reliance Petroleum depends very much on the state of world economy. Considering the commodity prices are pretty high in world markets we expect the RelPet stock price to be in upwards range of Rs 225 to 260 at end of 2009. We will further revise our valuation by the end of this year. Please not that, the current stock moment is based on speculative news so please be cautious on short term bets.
We want the long terms buyers to buy this stock at Rs.180 range and stay in the market for up to one year and get a return of 40 percent in a year and half.
For the speculators buy at 190 and see at 230 in next three months. We expect Reliance petroleum to declare an early production start date.
Interesting analysis. However, I am considering higher PE than the rest of companies. RPL will have about same PE as of RIL, based on its future growth potential.
ReplyDeleteP/E OF 8. tHAT IS WAY TOO PESSIMISTIC, also the GRMs of RPL should be higher than reliance as it can process crude of higher complexity and sulphur content meaning their crude purchase cost is going to be lower and hence higher margins.
ReplyDeleteI would expect 500 + is two year time frame.