RPL market-cap shoots past Indian Oil's by 25%

MUMBAI:What is happening in Reliance Petroleum (RPL)–– a company that will start commercial operations only a year from now and is yet buzzing on the bourses?

The company’s market cap has already exceeded that of India’s largest refiner Indian Oil Corporation (IOC) by over 25%. At Rs 69,980 crore ––the RPL market cap is over three times the combined market capital of HPCL and BPCL. That’s not all. Even among private sector oil companies, in market cap terms, RPL is already about 10 times bigger than Essar Oil, though the later has already begun production.

Analysts believe RPL’s stock is rising on news that it is being commissioned about nine months ahead of schedule and that Chevron could pick up another 24% stake in the company.

Another Mumbai-based analyst said, “Chevron picking up stake can not be the only factor moving the stock.” RPL is promoted by Reliance Industries which has a 75% stake in it, with Chevron holding 5% and the rest with the public. Chevron has an option to increase its stake in the company to 29% before commercial operations begin.

A Deutsche Bank research report earlier this month suggested that RPL’s 5,80,000 bpd complex refinery will be globally competitive and help capitalise on the global supply shortage. The report says the refinery will enjoy a 10% premium on refining margins due to its superior Nelson complexity score of 14.

Apart from their refining capacities (see chart), the three PSUs — IOC, HPCL and BPCL — also have a huge marketing network. They have a retail network of about 30,000 pumps controlling about 95% of the petrol and diesel market in the country. The companies have been laggards on the bourses, mainly because prices of these two products are controlled by the government.

Despite record refining margins, they continue to lose about Rs 150 crore everyday on fuel sales. Being an export-oriented refiner, RPL will have no such drawbacks. The company will also enjoy a five-year tax holiday apart from being able to export to international markets at a premium to domestic prices. Another reason for the lower market cap for the PSUs is that the floating stock for Indian Oil, the biggest among the three companies, is very low.

The government holds 80% in the company and financial institutions have 6.4%. For RPL, it is learnt that Mr Ambani has set an internal target of completing the refinery project by March 2008. On Wednesday, the scrip closed at Rs 155 on the BSE, down 2.5% from Tuesday’s close.