I have bought shares of Reliance Industries recently. The stock has not been doing well in recent times. When is a turnaround expected? Should I hold onto the stock? -Aditya Nigam
Reliance Industries Ltd. (RIL) has been underperforming the market for some time now. On a one-year basis, while the Sensex is up 2 per cent, the RIL stock is down 8 per cent. There have been some concerns about the company’s prospects that have been dragging RIL’s performance on the bourses. Key among them is the gas output at its KG-D6 wells. The company was expected to produce 80 mmscmd of gas whereas actual production is near only to 41 mmscmd. Then the shale gas investments that the company has been making aggressively in the US have yet to show money. Nothing concrete has yet come out of its Rs 4,800 crore investment in Infotel Broadband Services (P) Ltd. The company was expected to repeat the success of its mobile business in broadband but that has not happened yet.
One the positive side, its refining and petrochem businesses are doing quite well. Gross refining margin for the latest March 2011 quarter stood at $9.2 per barrel, above the benchmark Singapore margin of $7.4 per barrel.
At its current price levels, the stock trades at around 15 times its FY11 earnings which is not very expensive. Things could start looking up for the company as it starts ramping up its D6 production and shale gas benefits start flowing in. Also broadband rollout could be a big sentimental boost to the stock (reminiscent of the company’s success in the mobile business). If you have a long-term horizon of more than three years, you could hold on to your shares or even take advantage of the lower valuation to accumulate the stock.