I am publishing this post in the answer of Sudha’s query about the price target of RNRL, which I have been occasionally asked.
About RNRL I am as clueless as most of people , about the business of the company. The business profile on the official website (as on 24-11-2007) of the company remains silent about the business .
What general public knows about the it is that the company become demerged during the dispute between the Ambani brothers resolved and shares of of RNRL having face value of Rs.5-00, were issued to the share holders of at the premium of Rs.35-00.
While the demerger RNRL entered into agreement with RIL for supply certain quantity at certain price for a certain period. However, there is prolonged dispute between the brothers about the terms of the agreement and it is pending in the court. (See news 1 2 3 ) So, unlike RPL , RNRL has no fundamental footing to work on.
If you check the financial of the company you will find RNRL as one of the most expensive stock in the front line stocks. Against the huge share capital of Rs.736 Crore , quarterly turnover is 63 crore and net profit is 19 crore. Therefore, at given EPS of 00-27 paisa, price earning ratio is whopping 585 at the market price of Rs.158-00.
After initial listing in March’ 2006 RNRL was ranging between 22 to 30 till May’07. (check turnover figures at NSE)
In June’07 it clearly breached the level of 30 and moved up smartly without any downside till mid September. On 21-09-2007, it gave a unprecedented single day price hike in the history of Indian stock market from moving 56 to 76 and on next trading day on 24-09-07 it closed on 93.
Such sudden price hike drew attention of many investors and thereafter RNRL was on dream. People was expecting hikes of Rs.10-20 everyday and speculating price of 300 soon. But after hitting life time high 198-00 (203-00 on BSE) it followed the law of gravity and fall down but not significantly. Following chart will help you to under the price movements graphically.
It is very exciting to see the price movement of RNRL on screen, but there is nothing fundamentally to justify all these price hikes.
It is difficult to set any price target for this script as it is already hyper-overrvalued, and therefore it is strongly adviseable not to invest at this price unless you have long time horizon and some risk appetite.
If you are already invested at high price you will definately see your purchase price looking to the recent reversal up trend. However, every upward movement will be faced with profit booking and it may take some time to cross the life time high.
Disclaimer here, I have invested some good amount in RNRL at average of Rs.22-00 and I have become greedy as I am getting thundering 700% return and I have very deep (highly unlikely) stop loss and I am staying invested. Probably sell 10% stake at 220-00 take back the original invested amount.
Other Related posts :
Investment in Reliance Petroleum (RPL)
Reliance Petro(RPL) : High returns
Accumulating Tata Teleservices (Mahrahstra) Ltd. (TTML)
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