Reliance Petroleum has gained over 66% in the last one month. The stock has jumped from Rs159.35 a month ago to Rs 275, and at pesent is trading at Rs 264.75. So, the question is, whether the valuations of Reliance Petroleum justified. Here is an analysis.
Reliance Petroleum has gained over 66% in the last one month. The stock has jumped from Rs159.35 a month ago to Rs 275, and at pesent is trading at Rs 264.75. So, the question is, whether the valuations of Reliance Petroleum justified. Here is an analysis.
A lot of rupee appreciation is priced into the Reliance petroleum price. Looking at the price of Reliance Petroleum, the stock has seen a steep movement. In fact the market cap of Reliance Petroleum as of now is over USD 30 billion. So, that gives an indication about the valuations. Reliance Petroleum is getting ahead of the commencement of its operations which is expected in July 2008. The market is already pricing in and another factor, which should be looking at, is that most of the analysts were looking at USD 15 to 18 of GRM for Reliance Petro in the first three years of operations.
Now with crude hovering over USD 95, it is a realization among the analysts that GRMs are expected to be sustained for atleast 10-years instead of 3-years which means that they are discounting the cyclical factor of crude prices and if you do that, there is a view in the market that now you need to look at Reliance Petroleum earnings and sales as normal company and if you do that in FY10 revenue growth of nearly USD 14.2 billion and a profitability of USD 2.25 billion and for company which will come out with such sustained profitability of USD 2.25 billion; given the constant GRM of USD 15-18 for the next few years, the market is pricing in a higher PE for the company.
Analyst says that Infosys is giving a PE of 20-25 times FY10, hence for a company which is coming out with similar amount of profit, Reliance Petroleum is expected to give the same kind of PE. But that’s on the extreme side. Currently the Reliance Petroleum PE is hovering around 16 times FY10, which is much higher than global peers.
In fact Chevron PE is around 9 to 10 times forward PE and Reliance Petroleum is trading at a premium to that but Chevron has a market cap of USD 190 billion. It has a refining capacity of nearly 132 million tonne. In that sense, Reliance Petroleum is trading at a premium to its global peers and a lot of this is the discounting which is happening going forward when the Reliance refinery comes on stream next year.
Reliance Petroleum has gained over 66% in the last one month. The stock has jumped from Rs159.35 a month ago to Rs 275, and at pesent is trading at Rs 264.75. So, the question is, whether the valuations of Reliance Petroleum justified. Here is an analysis.
A lot of rupee appreciation is priced into the Reliance petroleum price. Looking at the price of Reliance Petroleum, the stock has seen a steep movement. In fact the market cap of Reliance Petroleum as of now is over USD 30 billion. So, that gives an indication about the valuations. Reliance Petroleum is getting ahead of the commencement of its operations which is expected in July 2008. The market is already pricing in and another factor, which should be looking at, is that most of the analysts were looking at USD 15 to 18 of GRM for Reliance Petro in the first three years of operations.
Now with crude hovering over USD 95, it is a realization among the analysts that GRMs are expected to be sustained for atleast 10-years instead of 3-years which means that they are discounting the cyclical factor of crude prices and if you do that, there is a view in the market that now you need to look at Reliance Petroleum earnings and sales as normal company and if you do that in FY10 revenue growth of nearly USD 14.2 billion and a profitability of USD 2.25 billion and for company which will come out with such sustained profitability of USD 2.25 billion; given the constant GRM of USD 15-18 for the next few years, the market is pricing in a higher PE for the company.
Analyst says that Infosys is giving a PE of 20-25 times FY10, hence for a company which is coming out with similar amount of profit, Reliance Petroleum is expected to give the same kind of PE. But that’s on the extreme side. Currently the Reliance Petroleum PE is hovering around 16 times FY10, which is much higher than global peers.
In fact Chevron PE is around 9 to 10 times forward PE and Reliance Petroleum is trading at a premium to that but Chevron has a market cap of USD 190 billion. It has a refining capacity of nearly 132 million tonne. In that sense, Reliance Petroleum is trading at a premium to its global peers and a lot of this is the discounting which is happening going forward when the Reliance refinery comes on stream next year.
