* Ambani gas dispute, weak refining margins cloud outlook
* Long-term prospects bright, drop may be buying
(For more Reuters BUY OR SELLs, click [BUYSELL/])
By Pratish Narayanan and Ami Shah
MUMBAI, Nov 13 Shares of India's biggest listed
company Reliance Industries (RELI.BO) are down since mid-June,
compared with the rising benchmark index, in an unusual
occurrence for a firm seen as a bellwether for the country's
Investors have been worried about a gas-pricing dispute
between the company, led by billionaire Mukesh Ambani, and
Reliance Natural RENR.BO that is controlled by his estranged
younger brother Anil. The dispute is being heard by India's top
While an unfavourable ruling from a lower court in June
helped knock 11 percent of its market value to about $75
billion over the past five months, Reliance shares have jumped
15 percent over the past week on rumours of a settlement
between the Ambani siblings even though the brothers have ruled
out a patch-up.
Is the tide turning for investors in the refining,
petrochemicals, and oil and gas exploration giant?
RIPE FOR TAKING PROFITS
Not so fast, according to R. K. Gupta, managing director of
Taurus Mutual Fund.
"The stock has reached its peak, and is due for a
correction," said Gupta, adding valuations looked very
stretched and around 1,850 rupees to 1,900 rupees would be a
fair price for the stock. Reliance shares closed at 2,100.20
rupees on Thursday. "It is time to book your profits in
A ruling from India's Supreme Court will determine whether
Reliance Industries stands to make or lose billions of dollars
through sales of gas from its find in the Krishna Godavari (KG)
basin off the country's east coast.
Adding to the uncertainty is a cloudy outlook for the
firm's refining margins, which have been slashed by a sluggish
global economy and has led to a fourth straight fall in
quarterly profit. [ID:nBNG441150]
"Estimates for the company cannot be raised unless refining
margins pick up, and the court ruling is out," said Maulik
Patel, an oil and gas analyst at K.R. Choksey Shares and
"We don't expect refining margins to improve quickly."
The percentage of analysts with a "hold" rating on Reliance
has dropped 14 percent to 12 over the past 90 days, but the
number of "sell" or equivalent recommendations is unchanged at
eight in the period, data from Thomson Reuters StarMine showed.
Others say the declines provide good buying opportunities
for investors looking for gains over a year or more, and that
the company's long-term prospects are bright.
"The stock is trading cheaper than the benchmark index, and
looks attractive right now," said Deepak Pareek, an oil and gas
analyst at Angel Broking, which expects Reliance to trade
between 2,100 rupees and 2,250 rupees over the next two to
"The stock has the potential to be the best performer in
the oil and gas sector as the company's businesses shape up
better," said Pareek, who has a "buy" rating on Reliance
The company's stock trades at 18.2 times forward earnings,
compared with an 18.6 multiple for the broader BSE index
An expected ramp-up in gas production from the company's
field off the east coast could boost results, some analysts
"Even if the court case is decided otherwise, the
businesses of the company are strong, and that would help it
cover up," said Rakesh Rawal, head of private wealth management
at Anand Rathi Financial Services.
The number of analysts recommending buying Reliance has
risen 25 percent to 10 over the past 90 days, according to
Thomson Reuters StarMine, which weights analysts' forecasts and
recommendations by their track record.
The main Mumbai market, in which the firm's stock has the
most weight of about 14 percent, is up almost 10 percent since
The divergence between the index and its biggest
constituent is viewed as an anomaly by some.
(For a graphic on the moves of Reliance and the index, click
"If you look back into history, this company would pull the
market up single-handedly," said Arun Kejriwal, whose
investment firm advises wealthy clients.
"What's happening now is unusual," said Kejriwal, who owns
several stocks in the oil and gas sector including Reliance
(Editing by Ranjit Gangadharan and Muralikumar Anantharaman)