Tuesday, July 15, 2008

Reliance Industries : Target Price Tars

Reliance Industries, as all Indians know is the Indian growth story, the India shining that make our chests swell with pride and (nearly) make Mukesh Ambani richest man in the world (well at least till the growth story was intact) .

Reliance Industries is such a central part of this country's scheme of making it into a developed, white nation that every fund manager worth his "grasp of the investing climate" quickly loaded up on the stock in his portfolios within the first few hours at the job..to many gasps of sheer admiration from the gallery.

It surely helped the stock Picking Process of these fund Managers' exhaustive due diligence that the media everyday sang paeans for the Reliance Pack, its visionary founder, his offsprings and the glorious path that lay ahead.
In fact so entwined is the future of this country with this family's visionary projects, visionary plans, visionary accounting, visionary shortcuts that certain Politicians (cutting across parties) were roped in to try and pass a bill in the Parliament allowing the Groups' corporate colors be changed to the tricolor national flag colors .. in fact the only reason it fell through was the bitter wrangling between the different politicians (on opposing brothers' sides) on which brother gets the colors and which gets the national emblem.. and when a national daily threatened to actually go public with such an agenda in non positive light for the Reliance Group ( unheard of in itself).. the duo decided to postpone Sovereign ambitions a tad.

So off they went about their business.. announcing project after project, investment plans after investment plans ( all running parallel..time is of essence here).. till nobody in the investment world, or the many analysts of different hues and colors who follow Reliance stock, could even keep a tab on all the projects or group companies or cross holdings or cash flows or ratios or even which growth projection incorporated which cash flow from which project into which companies balance sheet.. in fact it is suspected the situation within Reliance offices is just as chaotic and they all finally put together some nicely sloping ( upwards at an appropriate tilt) numbers every quarter to throw at the aforementioned analysts who then keep their home fires burning by deftly analyzing the same and turning up the next morning to announce their expectations exceeded (again!) in excited yelps on TV to coax some appropriate gymnastics on the Co's ticker tape..
..and the country sits back with warmed cockles and marvels at the wunderBrothers.

But lately, as the country's "investors" grapple with having to put up with sharing space with certain non-bull variety of farm animals.. who were allowed in ( a mistake in hindsight) into the stock market jamboree during the euphoric rise( of course their bovine cash helped) to add meat to the momentum..well these non-bulls (turns out most were actual, real sheep!) have now caused significantly more damage on the down move than any good on the up move.
..and Reliance, renowned far and wide for its abilities to manage growth, manage profit margins, manage tax loop holes, manage successive Govts. , manage accounting exponentiality, manage media, manage analysts and not the least manage its' share price.. had to face actual uncontrollable down moves in the scrip.. cannot the clowns see the profit margins, the growth , the projects..

That's the problem with sheep.. no reasoning .. they either move up or they move down.. and all of them.

So it began innocuously enough, more expectations exceeded more projects announced, more regulatory environments smoothened, more growth planned .. the analysts got down to work ..
since it was soon after the heady top of 21,500 on the SENSEX .. and the media was still quivering with the last spasms of the high .. corpulent, local Warren Buffetts were competing with each other to envision higher SENSEX 25,000 ..30,000 .. 50,000 (..in fact Luddic's Researchers, having failed to correlate anything(worthwhile) except unrequited libido to the market's 2 year gushing.. concluded that the lower had the visionary Prognosticator's self esteem been before the bull market.. the higher he seem to project the Sensex on his "investment" horizon.. *sigh* those were the days.

In these heady days.. our "analysts" ( OK, I use the word loosely..very loosely).. but then analysts by definition are loose losers who would be on the streets with tin cups if they actually traded their analysis.. so these "analysts" in this still quivering market.. just went about outdoing each other with their Reliance Target Prices.
To be fair for the last 2 years any analyst who upped his target when a stock dipped a bit was soon given his own cubicle, own appearance on TV, own herd of bulls to prod with his newer and higher target..so it was not surprising the highest "target" won the best cubicle/bonus/herd.

Sample some of their efforts to claim their rightful places in Analytic History :

  • ICICI secs in June : Reliance Ind Target: Rs. 3060
  • ShareKhan in April : Reliance Ind Target: Rs. 3196
  • India Infoline in Jan : Reliance Ind Target: Rs. 3316
  • India Infoline in Mar : Reliance Ind Target: Rs. 3198
  • Angel Broking in Apr : Reliance Ind Target: Rs. 3344
The analysis is not easy and any clueless john groping around to catch a quick 20-30% on his investments knows he is in good hands when he goes through the Target announcements - these are typically liberally garnished with serious doneMyHomework words like YOY, EV, EBIDTA, FY 4QF, FDEPS..to start with. that make normal English redundant and superfluous.
In fact we think the Angel broking guys have a good handle on the analysis situation in this country ,what with having beaten down the other wannabes hands down with a 3344 and the best narrative to boot :
" ..RIL stock is available at 18.7x FY2010E FDEPS of Rs 139.1. "
what more does an Investor need before pulling the trigger.. this is a sitter !!
In fact they wanted to fine tune the Target to Rs. 3344.15 based on the FDEPS of Rs.139.1 but the stenographer seems to have missed out in the draft announcement.

No Analyst story is complete without our old cat PN Vijay of PN Vijay Investments, who has for decades sagely advised investors how to invest and who ( along with his equally geriatric flock) unfortunately seems to have boughtEveryDip right from 20,500 to 12,900 and still holds basically Reliance in all his portfolios.

What brought this post about was the recent unfortunate events witnessed in the Indian financial capital Mumbai's streets when certain hooligans and antiSocial elements(though we strongly suspect many were mere investors in disguise) owing allegiance to a local, political, Uncle's offshot nephew's Party, stormed the cubicles of the abovementioned Analysis houses and dragging the (formerly)Target Happy Analysts into the streets and onto waiting donkeys ( you are seated facing back) quickly tarred and feathered the quivering (very different quivering , this) analysts before a loud and longish parade through downtown Mumbai.( In India cops can take a very long time coming).

Needless to say, it has been a while since anyone has announced Target(or getTar) Prices in this city and mostly offshore analysts are being used to announce any new Targets.

Update : Owing to recent macroeconomic issues, Angel (or Fairy) Broking has (through an outsourced analyst) lowered its Target for Reliance Industries by Rs.7 (was actually Rs.6.65, but steno.. ) to Rs. 3337 as they announced:
".. since FDEPS is now looking like Rs. 138.76"
..meanwhile the Reliance Industries scrip hit Rs.1977 today ?


Anonymous said...

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But be aware of backlash. I notice it happens when any truth is reported about China and India. But that is sad because people are not mature enough to stand constructive critisim

Anonymous said...

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Anonymous said...

Here in North America everybody in financial media is joking about the Pakistani riots due to stock market losses - financial statements burned, doors smashed, traders kicked , pot holders toppled.. Read Bloomberg . Good thing they havn`t read the donkey stuff yet!