Indian Financial Markets: RIL looks cheap, but upside is limited: Prabhudas Lilladher

Wednesday, August 8, 2012

RIL looks cheap, but upside is limited: Prabhudas Lilladher

Tue, Aug 07, 2012 at 14:24

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RIL looks cheap, but upside is limited: Prabhudas LilladherAccording to Sandip Sabharwal, Prabhudas Lilladher, RIL continues to be cheap. "I think it's a cheap stock. But there doesn’t seem to be any big upmove coming through, unless and until the telecom story starts unfolding," he adds. . Share . Email . Print . A+A- RIL looks cheap, but upside is limited: Prabhudas Lilladher

Yesterday, index heavyweight Reliance Industries witnessed a whooping 5% move. In an interview to CNBC-TV18, Sandip Sabharwal, Prabhudas Lilladher says, a combination of factors made that move possible. "One was the KG basin talk. Secondly, I think the refining margins like the product margins have also moved up sharply over the last few weeks," he elaborates.

According to him, RIL continues to be cheap. "I think it's a cheap stock. But there doesn’t seem to be any big upmove coming through, unless and until the telecom story starts unfolding," he adds.

Below is the edited transcript of his interview with CNBC-TV18's Sonia Shenoy and Reema Tendulkar.

Q: We saw a big spike up in RIL yesterday. What you made of Reliance? Are you getting incrementally bullish on Reliance or do you think it was just a one-off 5% move?

A: I think a combination of factors made that move possible. One was the KG basin talk. Secondly, I think the refining margins like the product margins have also moved up sharply over the last few weeks. So, I think some analysts are becoming more bullish on refining margins for this quarter.

Overall, the stock continues to be cheap. However, I think the triggers are still lacking in terms of creating a longer term bigger upmove because the production in KG basin is still falling. So, I think it’s a cheap stock. It will keep on having its rallies in between, but there doesn’t seem to be any big upmove coming through, unless and until the telecom story starts unfolding.

Q: How would you view Tata Motors now?

A: Going forward, although the sales growth for auto companies might moderate, the profitability might improve, given the fact that a lot of the input cost pressures have reduced significantly. We see coking coal prices, iron ore prices falling to almost two-three year lows. That will ultimately lead to steel prices coming off. That will directly benefit the gross margin of auto companies.

Similar trend could be visible in other inputs like tyres and other commodities. So, going forward, the margins will start improving. As that happens and as profitability improves, we should see the stocks do well. I think four wheeler companies, which are not facing issues like Maruti , M&M and Tata Motors, could actually see this happening.