Investment Idea : Reliance Industries Ltd.

Aggressive expansion plans to drive growth
A must have in an investor’s portfolio

Company : Reliance Industries
CMP : Rs.978
ST Target (3-4 Months): Rs. 1200
LT Target (12-15 Months): Rs. 1800
Risk : Moderate

About the Company
Reliance Industries need no introduction. India’s largest private sector enterprise and fortune 500 company, RIL, founded by Sh. Dhiru bhai Ambani and now managed by his elder son Mukesh Ambani, enjoys global leadership in its businesses being the largest polyester yarn and fibre producer in the world and among the top five to ten producers in the world in major petrochemical products. It contributes about 3% of India's GDP and is the country's largest exporter.

How does the Financials look ?
Turnover of Rs. 89,124 crore (US$ 19,976 million) against Rs. 73,164 crore for the previous year, an increase of 22%

Net Profit of Rs. 9,069 crore (US$ 2,033 million) against Rs. 7,572 crore for the previous year, an increase of 20%

Earnings Per Share (EPS) for the year is Rs. 65.1 (US$ 1.46)

Exports of manufactured products were Rs. 32,691 crore (US$ 7,327 million), against Rs.25,532 crore for the previous year, an increase of 28%

If we take into account the above valuations the stock price is ruling at a P/E of 15.

Why such a optimism on the Reliance stock ?

Current business will continue to show robust growth
Let’s see each business separately :
Oil & Gas (E&P)
RIL is the largest exploration acreage holder among the Private sector companies in India with 34 domestic exploration blocks covering an area of about 331,000 Square Kilometres. This is in addition to its interest in one exploration block each in Yemen and Oman. Reliance also has 5 coal bed methane blocks covering an area of about 4000 sqkm. The exploration of new reserves would add significantly to the topline of the company over a period of 3-5 years

Refinery and Marketing
The refinery margins were robust in all the regions as product price increases were higher than the concomitant rise in crude oil prices. The crude oil prices are expected to remain firm in the medium term due to demand –supply mismatch and hence the refinery margin would also remain robust. The company has recorded 92% capacity utilization at its refineries.

Petrochemicals
Operating rates of ethylene crackers continued to be high globally on account of sustained demand and lack of new capacities. However the petrochemical business worldwide was affected by high crude oil and natural gas prices leading to increase in cost of raw materials and reduction in profitability margins.

Reliance is world’s largest producer of polyester fibre and yarn with a capacity of 1.7 million tonnes. Reliance has a domestic market share of 51% in PFY, PSF and PET. During the year, Reliance commissioned a new polyester plant at Patalganga and Hazira with capacity of 550 KTA

RIL operates one of the world's largest and most efficient, multi-feed crackers at its Hazira petrochemicals complex

Other Group Companies doing well
IPCL has reported a 2% increase in its turnover from Rs 9,386 crore to Rs 9,597 crore. The profit after tax for the year has increased by 28% from Rs 786 crore to Rs. 1,005 crore.

Reliance Industrial Infrastructure Limited (RIIL) For the year ended 31st March 2006, RIIL has reported a 22% increase in its turnover from Rs 53 crore to Rs 64 crore. The profit after tax for the year has increased by 6% from Rs 17 crore to Rs. 18 crore. RIIL would be major driver of reliance foray into infrastructure projects and the stock price movement over last few months has already told the story lying ahead.

Reliance plans for a mega foray in retail
This is the most exciting part that will be unfolded in the time to come. Mukesh , who is known for his aggressive planning style, has already shown his mettle by adding the telecom business (now headed by Anil Ambani) to the reliance portfolio. Now, with the loss of this business to his younger brother, mukesh has eyed entry to the retail sector. This is going to be a mega foray and the project could be in range of 50000-70000 crore. This expansion will change the total dynamics of Reliance industries and would project the company as the major retail player in India. (will talk in detail about this later in a separate post)

So what are you waiting for ?
Going by the promoter background, past performance and the aggressive expansion plans, Reliance Industries emerges as a stock which should be a “must-have” in an individual’s portfolio. The current downtrend in the stock markets can be used as a opportunity to enter the stock at a fair valuation.

17 comments:

KK said...

Good to see an investment Idea on this blog (last one I saw was for Gujarat Ambuja, I believe). Will pick up some on monday

KK

Anonymous said...

Hi rajesh
Do you think we can buy reliance at 840 (the current price) or should we wait further for the markets to stabilise?
Vishal

sunil kumar said...

I feel that it will not come at 840 again. If it go down again one should wait for few sessions.
Sunil

murthy said...

I agree with sunil. The nuisnace that was created today by margin pressures will not be repeated as govt has assured funds from banks for settlement. However markets still look weak and we should wait for few days before putting money in Investment guru's idea !
Thanks rajesh for the excellent input on reliance and we look forward for many more such ideas to take advantage of the falling markets.
Murthy

Anonymous said...

rajesh,
I am not sure about the short term target you have mentioned but the long term target looks quite reasonable going by your article.
I think the stock will definitely give good returns in long term say 2-3 years. Alas! I am already invested @ 1090. but planning to buy some more at current levels to average out.

deepak
raigarh

Rajesh Soni said...

Dear friends,
May 22 proved to be an another bad day for Indian markets. The sensex crashed by more than 1100 points intraday with stock prices tumbling down sharply. The fall is attributed to the margin calls triggered for leveraged positions forcing traders to sell off their positions. even mutual funds faced redemption pressures and were bound to sell to some extent.

The markets were closed after the sensex dropped by 10% for 1 hour. The government woke up and FM came on media announcing that investors should not panic. But the poor investor had no choice other than to see their stock price crashing.
However, the markets recovered after opening and managed to cover around 6% of the intraday loss.
Investment guru advices investors not to panic in such grave situations and should not sell off in haste. Wait for the markets to stabilise and see how they perform over next few days. If you are sitting on cash, keep pumping small amounts into fundamentally strong stocks as they will eventually come up.

Need to rush! Lets see how tomorrow phanes out. catch you guys tomorrow during mid sesion. All the best !

ajit said...

Sir,

As promised by you we are waiting
for a word of stock specific
advice from your side.

Best Regards,
Ajit.

Anonymous said...

Dear Investment Guru
I have bought 50 shares of reliance today @925. I have invested earlier also on your investment idea and got profits
Please give 2-3 stocks in which I can invest for a period of 2 years.

Rgds
MM Kothari

Anonymous said...

Rajesh,
Does the Retail business come under Reliance Industries Ltd (RIL) or Reliance Industrial Infrastructure Limited (RIIL)?
thanks

Dayan said...

Reliance Retail is definitely a threat for enterpreneurship. Even though it generates 600,00 jobs this is not what companies like Reliance should be doing. Read this blog to understand better http://calldayan.blogs.friendster.com/my_blog/2006/07/reliance_retail.html

Anonymous said...

I like this Articel.

Follwing sites also have good info about it.

http://nayaissue.blogspot.com
https://learnhow2trade.com

Thanks,
mayank

Anonymous said...

Hii

If anybody intereste din reading polyester prince the banned biography of dhirubhai ambani please do contact me at firadh@gmail.com
This book is banned in india

Do reply back

thanks

Anonymous said...

hi
does the reliance industry give sponsership to student's project also?
if yes, then where shall wec proceed the things from or get the contact of the right authority?

QUALITY STOCKS UNDER 5 DOLLARS said...

Nice and well done post.

Kiara Fernandes said...
This comment has been removed by the author.
Kiara Fernandes said...

Getting investment idea from Reliance Industries so wonderful.This company has 19,976 million turnover last year.who don't to take advice from them.Investment Ideas

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