Rel Energy may find difficult to hit old highs

CNBC-TV18’s Executive Editor, Udayan Mukherjee -I doubt the name change of Reliance Energy will change something but now that there is not much by way of energy which the company does. It’s just about fair that it changes the name to Reliance Infrastructure. I think this stock is also a bit oversold because it was Rs 2,500 and now it has come to Rs 1,200, so one saw a bit of a pull back from the lows of yesterday and there might be little bit more juice in the pull back. Because the stock simply seems to have got oversold and might have to do with extraneous factors other than Reliance Energy itself.

I was looking at the valuations to figure out how much more of a bounce it could give, so if it just take out Reliance Power’s marketcap and Reliance Energy owns a significant chunk of Reliance Power but that marketcap is becoming a little indeterminate given the movements of Reliance Power. So just keeping that aside if one looks at Reliance Energy in isolation then one would still find that after that big fall the stock has had, it is still available at about 2.6 times price to book 2009, which is not expensive but not terribly cheap either.

If one looks at P/E multiple probably the stock is going at closer to 30-32 P/E multiple for FY09 that doesn’t make it very cheap. So if you are looking at infrastructure then you take out Reliance Power and then just look at Reliance Energy in isolation, you will find that the stock is still about 40% more expensive than any good quality infrastructure stock. We spoke about L&T and one can buy L&T at 21 times today or 22 times and you have to pay 32 times next year to buy Reliance Energy.

So the gap is because of the Reliance Power holding, which is increasingly difficult for the market to value given the gyrations in the stock price. To cut a long story short Reliance Energy might be oversold and will give you a bit of a pop but it will find a very big time struggle to get back any where close to where it fell off from because valuations, probably don’t support it too much.