Search the Internet           Tips

Jardine Fleming puts a 'strong buy' on Reliance

NetScribes/Salil Panchal and Rajiv Banerjee

Jardine Fleming has re-rated Reliance Industries (RIL) as one of the top three petrochemical companies in Asia. In its report dated December 1, 2000, the international research outfit states that RIL will emerge as a major player in the global polyester scene.

The bullishness on RIL arises from an expected rise in polyester and plastic prices. Analysts tracking the petrochem sector say that global polyester prices have bottomed out, while plastic prices are expected to plateau in 2001. The upward trend is expected to peak by 2003-04.

Jardine Fleming now expects the RIL stock to register a 30-38 per cent gain to touch Rs 426-451 and has re-rated it as a strong buy.

On the Bombay Stock Exchange (BSE), the scrip closed at Rs 339 on Tuesday, up Rs 5.90 from its previous close. A total 5.3 million shares were traded at the counter. From Rs 295.85 on October 20, the scrip has risen by 14.5 per cent to Rs 339 on Tuesday.

"The plastic cycle will see further pain into the next year, while the polyester cycle has bottomed. Higher capacity utilisation will drive the accelerated profit growth of 29 per cent per annum ahead of a margin growth in 2003-04," said Jal Irani, regional petrochemical co-ordinator at Jardine Fleming.

"Right now, the polyester market is sluggish with RIL's recent price cuts. But the general perception is that the market has bottomed out and will see an upside, touching a high by 2003-04," said an analyst at HSBC Securities, a leading institutional brokerage.

RIL's polyester staple fibre (PSF) prices had touched a high of Rs 74 per kg in April 1994, but slid steadily to Rs 41 per kg in January 1998. Prices have since recovered and are now ruling at Rs 54.5 per kg.

With the South East Asian economies limping back to health after the infamous crash three years ago, analysts expect demand to pick up in the polyester segment. "The excess supply created by the capacity addition that happened before the crisis will gradually get absorbed as the Asian economies turn around," said the analyst at HSBC Securities.

"The polyester market touched its peak in 1995 and touched rock bottom by 1998-99. Now, the only way the market can move is upwards," said Sanghamitra Pati of SSKI Securities, a Bombay-based equity research outfit.

The recovery augurs well for RIL as polyester accounts for two-fifths of its total business. RIL commands over 90 per cent share of the domestic market. "The recovery will definitely benefit Reliance as it dominates the Indian market. The scrip looks a strong buy at this moment," said Pati.

Money

Market Impact

Tell us what you think of this report