news on Reliance family

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LORDS OF THE RING

Creating market wealth seems to be in Reliance’s DNA. First, it was the late Dhirubhai Ambani who gave rise to the investor cult in the country three decades ago. Today, the Ambani scions are taking the baton ahead. And, thanks to boom times on Dalal Street, the stakes of the Ambani brothers in listed group companies together add up to a whopping Rs 2.9 lakh crore



(Contributed by: Ashish Agrawal, Bakul Chugan, Kewal Thakkar, Krishna Kant, Ramkrishna Kashelkar and Supriya Verma)






Reliance Industries

Profile: Oil & gas production, refining and petrochemicals CMP: Rs 2,296.2 M-Cap: Rs 3.2 lakh crore P/E: 25.3

Competencies & Opportunities:


• Proven ability of timely execution of large and complex

• Strong financial position enabling heavy capital investments for future growth

• Company’s credit rating is higher than India’s sovereign credit rating

• It’s growing both organically and inorganically — it has achieved a CAGR of 30% over the past five years

• Augmentation of refining capacity and commissioning of commercial production of oil and gas in the near term will help the company consolidate its position in the global energy market

Challenges:


• Huge investment projects are under way — RPL, E&P and retail. Any delay/failure in timely implementation can have a major impact on future cash flows

• Government policies over domestic oil & gas pricing, transportation etc can be detrimental to future growth

• Feud with RNRL and NTPC over pricing of natural gas for large chunk of volumes




Reliance Petroleum


Profile: Petroleum refining CMP: Rs 153.5 M-Cap: Rs 69,075 crore P/E: NA

Competencies & Opportunities:



• Has one of the most complex refineries in the world, facilitating distillation of a large variety of crude oil

• Due to higher refinery complexity, gross refining margins are expected to be superior

• Comparatively lower capital cost due to the benefits of ‘intelligent repeat’ of design and engineering aspects of RIL’s existing refinery, proactive procurement strategy and faster implementation of projects

Challenges:


• The project is still under implementation and the company will have to ensure its timely completion. Refining margins may decline by the time the refinery comes on stream

• Worldwide refining capacity is expected to go up, with huge supplies not auguring too well for margins




IPCL

Profile: Petrochemicals; merged with RIL CMP: Rs 458 M-Cap: Rs 13,832 crore P/E: 12.8

Competencies & Opportunities:


• The company enjoys higher operating margins compared to other domestic petrochemical players, thanks to the availability of natural gas feedstock for its crackers

Challenges:


• IPCL’s topline has been stagnating over the past few quarters

• The merger with RIL will entail closure of some plants, leading to higher expenditure on VRS




Reliance Industrial Infrastructure (RIIL)

Profile: Engineering and construction CMP: Rs 1,394.6 M-Cap: Rs 2,106 crore P/E: 110.2
Not much is known about this company or its area of activity. As the name suggests, the company provides engineering, construction and turnkey solutions to industries, especially petrochemicals and hydrocarbon industries. Its revenues suggest that it’s a very small company and is not growing much either. But some analysts believe that the company will gain from RIL’s ongoing expansion projects and the group’s forthcoming special economic zone projects.




Reliance Capital

Profile: Financial services company with interests across asset management, insurance and broking CMP: Rs 1,584.5 M-Cap: Rs 39,004 crore P/E: 45.7

Competencies & Opportunities:


• It’s the largest fund house with assets under management of over Rs 67,600 crore

• Ability to scale up operations in a short span of time (opened 4,000 outlets of Reliance Money across 700 cities in three months)

• It is building scale in its insurance segment, which is among the fastest business, with premium collections growing at near 100%

Challenges:


• Most business segments are highly leveraged to the capital market. Hence, market volatility can greatly influence the performance, going ahead

• Much of the growth in insurance business is due to a low base. Hence, maintaining this growth will be harder in the days to come due to stiff competition




Reliance Natural Resources

Profile: Sourcing and supply of fuels CMP: Rs 89.9 M-Cap: Rs 13,243 crore P/E: 599.3

Competencies & Opportunities:


• Provides fuel to the group company, Reliance Energy, at its Dahanu plant

• If its affiliate company wins licenses to coal blocks in India, access to coal mines will strengthen its sourcing operations

Challenges:


• Currently, it earns almost all its revenue from transactions with group companies. It needs to build a robust business model

• Development of coal bed methane (CBM) and oil blocks is capital-intensive and time-consuming




Reliance Communications


Profile: Telecom and broadband services CMP: Rs 585.65 M-Cap: Rs 119,743 crore P/E: 61

Competencies & Opportunities:


• Present in all voice and data-related telecom and broadband segments

• Being the second-largest mobile services provider, it enjoys a strong presence in one of the fastest-growing telecom markets in the world One of the biggest carriers of international
• Owns the largest private submarine data cable system through Flag Telecom, which gives it access to the global telecom market

Challenges:


• Its entry in the GSM space of the domestic telecom market may be delayed, depending on allocation of spectrum by the government

• The GSM space is highly competitive with established players like Bharti Airtel and Vodafone




Reliance Energy

Profile: Power generation, distribution and EPC contractor CMP: Rs 1,205.5 M-Cap: Rs 27,549 cr P/E: 32.6

Competencies & Opportunities:


• Significant amount of cash reserves and low debt-equity ratio compared to industry standards enable faster financial closure and progress in all projects

• Gains major mileage with award of 4,000-mw ultra mega power project

• The government’s decision to allow companies to expand capacity of ultra mega projects, along with availability of coal via captive mines, can yield significant revenue

• EPC division to gain from large number of in-house projects

Challenges:



• Fate of gas-based plants still hangs in the balance for want of gas. Gas supply agreement with RIL is sub-judice

• Profitability of the company is limited, with low upside due to regulated nature of the power sector

• EPC division has high degree of sub-contracting, limiting its profit margin




Adlabs Films

Profile: Movie production, post-production, digital distribution and film exhibition CMP: Rs 519.3 M-Cap: Rs 2,264 crore P/E: 33.8

Competencies & Opportunities:


• It’s the market leader with over 70% share in the Hindi movie segment

• Enjoys wide presence in the FM radio space across India through 45 stations

Challenges:


• Movie exhibition is a low-margin business. The company needs to increase its presence in other segments to reduce exposure to exhibitions revenue, which constitutes more than half of its total revenue
(Note: ADAG owns 54.9% in Adlabs)

















TITAN INDUSTRIES

RESEARCH: MORGAN STANLEY RATING: OVERWEIGHT CMP: RS 1,469
MORGAN Stanley has assigned an ‘overweight’ rating to Titan. The stock is not fully discounting its long-term growth potential which depends on the following factors: 1) Product mix-led revenue growth and margin expansion in the watch business; 2) Improvement in product mix and same-store growth for Titan’s Tanishq jewellery retailing business; 3) Successful roll-out of its new businesses, i.e. eyewear and mass market jewellery retailing; and 4) Turnaround in its international and precision engineering division businesses. Morgan Stanley assumes Titan can deliver 22.4% CAGR in earnings during FY07-20. However, in FY07-10, it is likely to deliver 34.7% CAGR in earnings. The stock is trading near its all-time high and is attractively valued on a price-earnings growth versus return on equity basis.

JET AIRWAYS

RESEARCH: MERRILL LYNCH RATING: NEUTRAL CMP: RS 907
MERRILL Lynch has downgraded Jet Airways’ rating to ‘neutral’ from ‘buy’ as the stock has breached its target after its strong performance this fiscal. The stock currently trades at a slight premium to global growth airlines, up from a 25% discount earlier this year. Jet’s earnings are highly sensitive to variations in Jet Kero prices, but they are even more sensitive to the rupee’s volatility. A $1 variation in fuel price will impact Jet’s FY09E EBITDAR by 1.8%, assuming load factors are not impacted. Conversely, a Re 1 variation in exchange rate will positively impact FY09E EBITDA by 5.1%. Jet has registered stronger than-expected load factors on existing as well as new routes. The company’s recent introduction to the US has expectedly done well, and it is on track to add five more routes this year, including the busy Middle Eastern routes. Jet’s key routes to London and Singapore continue to grow rapidly. The company is likely to sustain this performance on new routes, given its superior product and expanding franchise. Jet’s Q1 yields, up 13.4% YoY and 2.4% QoQ, also illustrate improved pricing power. The stock has risen 53% this fiscal, compared to 30% growth witnessed in the broader stock market. Merrill Lynch believes that this has largely captured the turnaround in Jet’s operations.

BHARTI AIRTEL

RESEARCH: HSBC GLOBAL RATING: OVERWEIGHT CMP: RS 941
HSBC Global reiterates ‘overweight’ rating on Bharti Airtel. The domestic wireless segment has a fragmented market structure with scarce radio spectrum allocated to a large number of players on a circle-by-circle basis. With rapid growth of 6-7 million subscribers a month and very high minutes of usage per subscriber, network congestion is a serious problem in metros. Trai’s plan to raise the subscriber targets required to receive additional spectrum can drive up capex for Bharti Airtel, which is entitled to additional spectrum in all 23 circles under existing rules. The military announced plans to clear out of 45 MHz of spectrum and our current forecasts for India assume spectrum constraints are resolved over time. However, the potential shift in Trai’s policy suggests our existing capex-tower assumptions are too optimistic. HSBC provides three scenarios under which the number of subscribers per cell site decline by 2-4% per year for FY09-FY11E, from the current level of 857, down to a worst case of 760. Bharti Airtel will have to invest $2.6 billion to install 26,500 towers to support the existing subscriber forecast of 122 million by FY11E, trimming off Rs 57 per share from HSBC’s enterprise value. A significant portion of this investment in new towers can be offset by tower-sharing revenues.

















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