Reliance Petroleum Ltd, a unit of Reliance Industries that plans to sell 1.8 billion shares in an initial public offering to raise up to $1.3 billion, has been valued for upto $8.5 billion or Rs 83 per share by global banking major HSBC.
Terming RPL's 580,000 barrels per day (29 million tones per annum) refinery at Jamnagar in Gujarat as "well planned and designed project", HSBC in its March 2 Global Research report said, "our fair value range for RPL is $6.8-8.5 billion on a relative PE basis. On a Discounted Cash Flow basis, the fair value range is $6.1-8.1 billion."
HSBC forecasted a net profit of Rs 5000 crore (Rs 50 billion) for RPL in 2009-10, the first full year of operations, driven by refining margin of over 10 dollars per barrel and 95 per cent capacity utilisation. "We expect a modest rise in earnings of 12 per cent in 2010-11 to Rs 5600 crore (Rs 56 billion)."
The $6 billion cost of completing the project was at the lower end vis-a-vis comparable projects, it said.
"RPL's proposed refinery is even more complex than RIL's existing (660,000 barrels per day Jamnagar) refinery. We estimate the project would be able to achieve refining margins of over $10 per barrel in 2009-11, $3 per barrel higher than Singapore refining margins," the report said.
"Its ability to process crudes even heavier than RIL's existing refinery and produce a superior product slate would help achieve high refining margins," HSBC said.
The new refinery would be located in Jamnagar Special Economic Zone which would give it several fiscal benefits.
HSBC said being located in a SEZ would entitle the refinery to income tax exemptions on export profits for first five years of operation. Fifty per cent of export profits would be exempted from income tax for the next five years.Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group
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