JUST nine months ago, the outlook on Reliance Petroleum’s (RPL) new refinery was that it would become operational by March 2008, a time when the refining margins would be at its peak. This drove up its valuations to crazy levels. RPL’s market value soared past Rs 1,20,000 crore in early November 2007 — nearly 20% higher than all the public sector refiners put together — even before the company had started its business.
H o w e v e r, the excitement fizzled out when the project did not take off in March. Now, even July has passed and the refinery is yet to start commercial production. And all the investors are left with is an assurance that “the refinery is expected to be completed ahead of schedule”. Now, considering the original schedule of September 2008 for completion, it could at most be a month, if not just a couple of weeks, by which the project could be preponed.
This confusion has resulted in a downward revision in the valuations of RPL as well as its parent company Reliance Industries (RIL). In its latest report on RIL, DSP Merrill Lynch says: “Our earlier FY09E earnings forecast assumed RPL’s refinery operating for nine months (from July 2008) in FY09E. Now, we expect only three months of commercial operations for RPL in FY09E.” It has maintained a ‘buy’ on RIL, but downgraded its earning estimates.
In mid-2007, several broking houses, including Goldman Sachs and HSBC, were predicting the RPL refinery to commission six months ahead of schedule. Although they were off the mark on this count, the scrip has already crossed their price targets based on estimated FY10 earnings.
Despite such controversies over the before-time completion of the 5,80,000 barrels per day (bpd) RPL refinery, some experts appreciate the project execution capability of Reliance management. Vandana Hari, Asian oil news director at Platts said: “Capital goods market is tight globally. There is severe shortage of manpower as well as engineering services and a number of refinery projects are now facing inordinate delays and cost overruns all over the world. In this scenario, RPL refinery getting ready within 36 months as well as within budget is really commendable.”
H o w e v e r, the excitement fizzled out when the project did not take off in March. Now, even July has passed and the refinery is yet to start commercial production. And all the investors are left with is an assurance that “the refinery is expected to be completed ahead of schedule”. Now, considering the original schedule of September 2008 for completion, it could at most be a month, if not just a couple of weeks, by which the project could be preponed.
This confusion has resulted in a downward revision in the valuations of RPL as well as its parent company Reliance Industries (RIL). In its latest report on RIL, DSP Merrill Lynch says: “Our earlier FY09E earnings forecast assumed RPL’s refinery operating for nine months (from July 2008) in FY09E. Now, we expect only three months of commercial operations for RPL in FY09E.” It has maintained a ‘buy’ on RIL, but downgraded its earning estimates.
In mid-2007, several broking houses, including Goldman Sachs and HSBC, were predicting the RPL refinery to commission six months ahead of schedule. Although they were off the mark on this count, the scrip has already crossed their price targets based on estimated FY10 earnings.
Despite such controversies over the before-time completion of the 5,80,000 barrels per day (bpd) RPL refinery, some experts appreciate the project execution capability of Reliance management. Vandana Hari, Asian oil news director at Platts said: “Capital goods market is tight globally. There is severe shortage of manpower as well as engineering services and a number of refinery projects are now facing inordinate delays and cost overruns all over the world. In this scenario, RPL refinery getting ready within 36 months as well as within budget is really commendable.”
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