Our Scrip Is Still Undervalued

Anil Ambani, managing director, Reliance Industries Ltd (RIL), said that the RIL scrip is undervalued when compared to other international petrochemical majors.

The RIL stock is still trading at a PE multiple that is lower than that of comparable MNCs globally in this business, said Ambani after the press conference to announce the company's full year results.

When asked what he thought of RIL's market valuation, Ambani added: I think there is still a good upside for investors (in the RIL stock).

However, despite the low discounting RIL has compared to other global companies, Ambani says, there is a re-rating of the stock going on in the market.

 

He pointed out that the Reliance stock price has increased by 38 per cent as on March 31, 1998 to Rs 176.9 from 128.4 on March 31, 1997.

When compared to the Sensex in the same period which rose by 16 percent, the RIL stock has outperformed the Sensex by 2.4 times.

This re-rating has meant that the company's historical P/E ratio has improved from 8.9 per cent to 10.2 per cent, and its market capitalisation has gone up 40 per cent in the last one year till March 31, 1998 to Rs 16,518 crore.

The RIL scrip is currently being discounted by 11.3 times its 1997-98 earnings per share of Rs 17.6. This is much lower than the discounting enjoyed by other majors. Imperial Chemical Industries (ICI), for instance, is being quoted on the London Stock Exchange at a price earnings multiple of 43. E I du Pont de Nemours is trading at a P/E ratio of 37.6 and Eastman Chemicals enjoys a discounting of 19 times its earnings.

In comparison, the highest discounting received by RIL in the past one year was in October last year, before the half yearly results were announced, when the stock was traded at a P/E multiple of 19.

Among the targets the company has set itself, RIL hopes to double the value of the company in the next five years. The company also plans to give investors a return of at least 20 per cent on equity, and achieve a compounded growth of 20 per cent in its earnings per share. The growth in EPS in 1997-98 has been 22 per cent.