Year: 2007

Macquarie Research just a while ago upgraded the stock of Reliance Industries Ltd with a new target price of Rs 3,100. 20.8% Potential upside from current levels.

RIL plans to build one of the world’s largest cracker and petrochemicals complexes at Jamnagar. The proposed facility, with 2mtpa capacity, will be built at a capital cost of US$3bn and is expected to come on-stream by FY3/11.RIL has 4.4bn boe of 2P hydrocarbon reserves which are twice of that provided by partner in KGD6, Niko resources and compares with 1.5bn boe of 1P reserves stated in recently released annual report.

Sum of Parts Valuation of the company by Macquarie,

Core Business Rs 1161
IPCL Rs 70
Fuel Retailing Rs 85
E&P Business Rs 263
75% stake in Reliance Petroleum – Rs 386
Treasury Stock Rs 359
CBM-Sohagpur and NEC 25 Gas – Rs 198
Other E&P (D9, D3 and GS-01) Rs 119
Organised retail venture – Rs 165
2mtpa Ethylene Cracker – Rs 295

This is still very cheap as they have not factored in the vast Land Banks the company has been accumulating for its SEZ and Retail venture.

Coverage of Reliance Industries by Goldman Sachs, CLSA, Deutsche Bank

Hanung Toys & Textiles:
It’s already India’s largest manufacturer of soft toys. Now Hanung Toys plans a fairy tale-like foray into home furnishing. The order book of the Rs 275-crore soft toys and bed linen export is crammed. Within the last three weeks, Hanung has signed deals worth over $265 million (Rs 1,060 crore).

In next few years, Hanung will work on expanding its footprint across the country. It is already present in over 3,000 stores, which includes like Archies, Lifestyle, Shoppers’ Stop and Pantaloons. Hanung has invested Rs 160 crore in a new plant in Uttaranchal, which will boost its capacity from six million metres to 39 million metres. As with toys, the new plant will also help Hanung grow its domestic business.

On the valuation front, the CMP of Rs 173.85 discounts its FY07 earning by 15.75x. But with the management confident of its 50 per cent growth the counter seems to be a good buy.

Dhanlakshmi Bank:
Dhanalakshmi Bank is a Kerala based bank, with about 180 branches and 26 extension counters spread. The bank has deposits of about Rs 3200 crore, advances of about Rs 2000 crore, investments of about Rs 700 crore and capital adequacy of about 9.87 per cent.

Recently the RBI did not allow the bank to come out with right issue as promoter holding is higher than 10 per cent. But recently the promoters have brought down their holding to 9.68 per cent by selling stake in the open market. So, now the company can go for right issue which will increase its networth beyond Rs 300 crore, which will also help the bank to take its
branch network beyond 200.

Warburg Schweiz, Deutsche Bank and FIIs like Lotus Global Investments, Rhodus Diversified Fund and Somerset Emerging Opportunities Fund have bought stake in the bank. The counter would be a good takeover candidate in the long run.

The bank may post an EPS of Rs 8 plus for FY08 and the right issue may likely to be in the ratio of 1:1 with the price not exceeding Rs 50 per share; close to its present book value. This, would be perceived positively by the market.