Now again we need to re-think that whether any fundamental change happened on such announcement(RPL is going to startup on decemeber 2008).
Positives:
1. Finally plant is commissioning on 28th dec 2008.
2. Stock already fallen 68% from its peak.
Negatives:
1. It is a very formal announcement and the commercial production will start only in April 2009 or later.
2. Global GRMs fallen to negative zone in Q3 FY09.
3. RIL is facing huge credit crunch recently (In US some financial institutions like Ex-im, not funding to RIL due to the governments intervention).
4. Very huge high Debt/equity ration.
5. The expected EPS for FY10 (remember not FY09) is 8-10 (if we have taken the optimistic case/report) and based on this the stock may not go beyond the 100/- even for targeting the one year forward earnings.
6. The world oil giant CHEVRON is ready exit from the deal which clearly indicates that the stock is out of favor even at the CMP. (It is very clear that CHEVRON is the right company to judge whether the current valuations are good or not for RPL based on the outlook of Oil refineries).
7. At home Mutual fund houses sold heavily from last six months in this stock and still at CMP they are negative in this sector.
8. In the latest report IEA suggested that “Global oil demand declined for the first time in a generation” and is likely to deteriorate further as china and India too going to hit severely.
9. RIL already shut its petchem and polyester plants due to global recession.
10. They are forcing to cut the employees either through VRS (in addition to 500 cut in petchem division and 5000 cut in others). This clearly indicates that how RIL affected to the crisis.
11. There is a demand to not to export the diesel and should be utilized at India frist if so some of the rules to be changed (like it was done in past in case of the gas issue) which could some what definitely influence the margins and issue of MAT tax on such products.
So, all in all the stock may not outperform the bourses when viewed one year period. Better to avoid oil refineries at this point of time. It is better to invest in RIL after the Q3 numbers than the RPL.
In the near term RPL will face huge resistance around 98-106 and if it crosses this then at 112/- one can exit from their long positions without any hesitation.
The stock would be in the range between 74- 98/- in the upcoming weeks.
With thanks
Be and make
(This article is on the interest of the small investors not to enter at the CMP based on this latest announcement.)
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