For Reliance Industries’s Q 3 Profits for the Q ended December 31,2008,few estimates were over Rs 3500 crs…some were even below Rs 2700 crs and the consensus revolved around Rs 3000 crs
Despite an expected drop in Margins,Revenues and Profits to reflect challenging times,Reliance,true to form,showed a respectable profit of Rs 3501 crs in Q 3 against Rs 3882 crs yoy,supported by an increase in Other Income from Rs 241 crs yoy to Rs 641 crs
Gross Refining Margins are US $ 10/barrel.Cash and Cash Equivalents are Rs 28500 crs.Revenues are split 37% and 63% between Petrochemicals and Refining
Reliance may fail to notch an EPS of Rs 100+ for FY 2008/9 on fully diluted equity of Rs 1580 crs as it is unlikely to notch up profits of Rs 16000 crs for the full year.Gross Refining Margins and Quantum,if any,of Hedging or Speculative Loss on Oil Price Plays holds the key for profits that will be reported for this Q 4
Back of the Envelope Valuation on Earnings Multiples
Unless we are confronted with a shock on Derivative Losses on Oil Price Plays,even if camouflaged as Higher Cost Inventories,the likely EPS for FY 09 would be in the Rs 90 to Rs 95 range.At Rs 1136 closing today,the multiple would be @ 12.With expectations of Krishna Godavri Basin Gas contributing to revenues and profits from FY 10 and without much equity dilution,the Forward EPS estimates for FY 10 revolve around Rs 115…Applying a Multiple range of 7-14,the Share price Range in 2009 should be Rs 800-Rs 1600 and will depend on prevailing seniment and Earnings in FY 10.For Reliance to race away back towards Rs 2000 in 2009,a better sentiment has to prevail in the Markets to facilitate a higher multiple than 14…this is unlikely to happen anytime soon
Looking at the Downside…if the Sensex,currently has gone yet again below 9000 and is at 8800 levels, seeks to sink even below 7000 sometime in 2009,then Reliance will fall in sync towards Rs 800 with forward multiple falling to 7…unless global markets get hysterical and unless Reliance shocks with some significant scam,I don’t see Reliance below Rs 800 in 2009 or above Rs 1600 for that matter.It closed at Rs 1136 today.Results came in after market hours,so expect some rally tomorrow.