Negative news flow across businesses weighs Reliance Industries
A bout of negative news flow across businesses has weighed on Reliance Industries (RIL) recently. Cumulatively, these risks can shave off 33% from its FY10 EPS and 28% from its fair value estimate.
By ET Bureau |
RESEARCH: CLSA
RATING: OUTPERFORM
CMP: RS 2,113
A bout of negative news flow across businesses has weighed on Reliance Industries (RIL) recently. Cumulatively, these risks can shave off 33% from its FY10 EPS and 28% from its fair value estimate.
While some of these risks may materialise, most are transitory and are likely to subside. The finance ministry is said to be seriously considering a cut in petrochemical tariffs, given the spike in inflation. Demand for imposition of windfall tax and withdrawal of EOU benefit for RIL���s refinery have gained currency in recent weeks.
The RPET and KG-D 6 gas projects have also slipped past initial expectations. Further, the uncertainty on Section 80-IB income tax benefits continues, while the Reliance-RNRL court case is still dragging on. The estimates of an October ���08 start-up for RPET and KG-D 6 gas do not appear at risk currently, but they cannot be ruled out - especially for the KG-D 6 gas project, which RIL has indicated is running four months behind its June ���08 internal target. The company���s FY09 earnings will depend on the timing of project start-up , but overall, CLSA sees limited fair value risk from these uncertainties.
Further, with the worse-case scenario (Rs 1,845/share) being only 9% lower, downsides appear limited, even if these uncertainties remain. RIL���s valuation multiples (9x P/E, 6.8x P/CF, 47% EPS CAGR) are now 15% lower than the Sensex on FY10 estimates and in a ��5% range to its global peers (9.6x P/E, 6.8x P/CF).
RATING: OUTPERFORM
CMP: RS 2,113
A bout of negative news flow across businesses has weighed on Reliance Industries (RIL) recently. Cumulatively, these risks can shave off 33% from its FY10 EPS and 28% from its fair value estimate.
While some of these risks may materialise, most are transitory and are likely to subside. The finance ministry is said to be seriously considering a cut in petrochemical tariffs, given the spike in inflation. Demand for imposition of windfall tax and withdrawal of EOU benefit for RIL���s refinery have gained currency in recent weeks.
The RPET and KG-D 6 gas projects have also slipped past initial expectations. Further, the uncertainty on Section 80-IB income tax benefits continues, while the Reliance-RNRL court case is still dragging on. The estimates of an October ���08 start-up for RPET and KG-D 6 gas do not appear at risk currently, but they cannot be ruled out - especially for the KG-D 6 gas project, which RIL has indicated is running four months behind its June ���08 internal target. The company���s FY09 earnings will depend on the timing of project start-up , but overall, CLSA sees limited fair value risk from these uncertainties.
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Further, with the worse-case scenario (Rs 1,845/share) being only 9% lower, downsides appear limited, even if these uncertainties remain. RIL���s valuation multiples (9x P/E, 6.8x P/CF, 47% EPS CAGR) are now 15% lower than the Sensex on FY10 estimates and in a ��5% range to its global peers (9.6x P/E, 6.8x P/CF).
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