The Hindu Business Line : Reliance Petroleum tumbles 17% on CLSA downgrade

The stock closed the day at Rs 220.35 against Monday’s price of Rs 267.55 with 7.62 crore shares changing hands on the BSE. The two-week average trading quantity on the BSE was 2.61 crore shares. On the NSE, the stock fell 17.73 per cent at Rs 220.15 with over 15 crore changing hands of which 39 per cent was deliverable quantity.

Profit booking

Reports that CLSA has downgraded the stock to under-perform seemed to have affected the sentiment for the stock.

However, brokers said as the stock ran up quite sharply in recent times it witnessed some profit booking. They also attribute the downfall to the short positions added in F&O segment on Monday and on early Tuesday. “After quadrupling since our initiation in April-07, RPL now trades at an asset value of $4,129/complex-bpd – 2.4x that of its peers in the US and a 50-70 per cent premium to even the most expensive refinery new-builds quotes.

“While such a premium recognises its superior earnings potential because of lower capital costs and taxes, even on earnings-based multiples RPL appears fully priced relative to its peer group at 10.9x P/CE and tax-benefit-adjusted 9.9 EV/EBITDA calculated on our upgraded top-of-consensus FY10 estimate. Risk reward is unfavourable,” said CLSA in its latest Barrels and Bubbles report.

Short positions

According to Mr V.K. Sharma of Anagram Stock Broking, “fundamentally, nothing has changed for the stock, whether when it moved up or when it is moving down now. However, short positions of about 37 per cent were added in the F&O segment on Monday and even further on Tuesday, putting pressure on the counter.

“Our preliminary figure suggests that the open interest positions might reach the maximum permissible limit of 95 per cent that could attract trading ban on the counter.” The fear of trading ban also added pressure on the stock, he added.

Citigroup, in its latest report, has downgraded the stock from buy to hold.

“RPL is trading at EV/bpd of $37,000 and EV per complexity bbl of $2,641, at premium to replacement costs – $25,000 and $2,000 respectively and RIL’s imputed multiples.

“Even adjusting for the value of tax benefits ($2.8billion= $345 per complexity bbl) and benefits of polypropylene unit, the current valuations do not leave much room for further re-rating,” it said in that report.

Negative catalysts

“Stronger rupee and sharp decline in refining margins would be negative catalysts. Though there has been some debate on re-investment possibilities and its impact on value accretion and/or higher tax benefits, we believe it could be sometime away and partially factored into our valuations,” said the Citigroup research report.

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