Reliance gains a billion

Reliance Industries (RIL) has netted Rs 3,662-crore profit from sale of a part of its equity holding in its subsidiary Reliance Petroleum. This amount is almost equal to the net profit reported by the company for the second quarter of this fiscal.

RIL announced late on Friday night that it has offloaded 18.04 crore shares representing 4.01 per cent of RPL’s equity through the exchanges raising Rs 4,023 crore. Post the sale, RIL’s holding in Reliance Petroleum will fall to 70.99 per cent. There will also be an increase in the number of shareholders in Reliance Petroleum from 12 lakh to 16 lakh, according to a press release from the company.

Going by these numbers, RIL’s average selling price per share of Reliance Petroleum works out to Rs 223 compared to the average acquisition cost of Rs 20 per share as per its books.

The total amount raised from the sale of shares is about a fifth of the cash generated by RIL from operations in 2006-07.

The transaction is likely to help RIL double its per share earnings in the third quarter on a sequential basis, all other things remaining equal. The company had an EPS of Rs 27 in the second quarter; the divestment profit alone will add Rs 27 per share, before tax, to third quarter earnings.

RIL’s timing of divestment appears perfect given that the Reliance Petroleum stock was on a sustained uptrend from mid-September till it reversed trend on November 5.
Well-timed

The stock more than doubled in value in this period to touch a peak of Rs 295 before dropping back. Since the trend reversal on November 5, the stock has been consistently falling and closed at Rs 209 on Friday.

Towards the later stages of the rally, the stock was driven by reports that Chevron, which holds 5 per cent equity in RPL, is planning to exercise its option to pick up another 24 per cent stake. Chevron, however, denied that there were any such plans for the moment.

Reliance Petroleum stock’s rally was accompanied by a surge in trading volumes. Average daily trading volume shot up from 92 lakh shares in the early August – mid-September period to 4.28 crore shares between mid-September and now.
Camouflaged

Though RIL has offloaded 18.04 crore shares through the exchanges, it is interesting to note that not one of the transactions figures in bulk deals. The high daily volumes appear to have helped RIL camouflage its divestment transactions