Monday, January 23, 2012

>RELIANCE INDUSTRIES: Declared muted Q3FY12 results; Buyback is very negative; RIL’s GRM’s are quoting below Singapore GRM

• On 20th Jan 2012, RIL declared muted Q3FY12 results.
• Tried to cheer investors by announcing buyback of shares at a price of Rs.870.
• Buyback is very negative, it is a cover up for bad result and in bear phase market the stock will not move above buyback price.
• The surprise was the sharp slide in the profits, "Other Income" in the current quarter constitutes 30% of the Profit Before Tax.
• RIL’s refining margins fell to US$ 6.8/bbl a discount of US$ 1.1/bbl over benchmark Singapore GRM US$7.3-7.4/bbl. Lost its advantage of trading  at a premium to Singapore GRM.
• Third quarter numbers indicate weakness across business segments and bleak future outlook for the company as a whole.

• On 20th Jan 2012, RIL declared its Q3FY12 results and tried to cheer investors by announcing buyback of shares.
• RIL has approved share buyback of Rs 10,440 cr at maximum price upto Rs 870/share.
• RIL will buyback up to 12 cr shares or 3.6% equity via open-market.
• The RIL buyback is happening after time span of 7 years (last announced in 2005).

What markets think…??
• We feel that maximum buyback priced fixed at Rs. 870/share which is at 10% premium to Friday’s closing price may not be that attractive to the investors who have entered the stock at much higher valuations.
• This surprise move of the buyback has rose questions of further company’s performance which has already shown some concerns on most of its segments and various issues surrounding the company.
• This is also questioning the huge cash of Rs. 74,539 crs for Dec 2011 end which the company holds in its books and its deployment.
• This could be also taken as just a move to compensate for the stock and company’s performance. As the stock has already underperformed the market over the past one year and would have continued to do so in the light of the latest results as well. The stock has corrected 26% v/s Nifty correction of 15% from their 52 week highs.
• As per SEBI norms, the company will have to mandatory buyback equity worth Rs 2,610 crore, or 25% of the intended buyback amount.
• According to the media reports - the whole process of the Buyback news is not addressed properly by the company. It is also seen that Reliance has treasury stake in two companies - Reliance Chemicals and Reliance Polyolefins. Since the 12 crore shares held in Reliance Chemicals counts as promoter stake, it cannot be bought back. But the stake in Reliance Polyolefins is non-promoter, so the market is going to question if this will be bought back by the company. So it is to see the prompt action by the management on this announcement.

To read the full report: RIL


Sandeep Gupta said...

I feel the Reliance should focus on Improving their Business more than bothering about their share value. An CEO should focus on increasing their business than pleasing their share holders.