If we will see chart of Reliance of 5 years then Reliance was trading between 800 (lowest on 15-05-2012 Rs 681.65) to 1109 (highest on 06-06-2014 RS 1122.40). On 22-02-2017 it has crossed resistance of 1125 with huge volume & closed on the same day at 1207.5. Therefore based on rounding bottom target is coming to RS 1450. Total approximately 1010 days Reliance has taken to complete Rounding bottom pattern. Hence target price of RS 1450 will be achieved approximately in (1010/2) 505 days.
What is a Rounding Bottom Pattern
A chart pattern used in technical analysis, which is identified by a series of price movements that, when graphed, form the shape of a “U”. Rounding bottoms are found at the end of extended downward trends and signify a reversal in long-term price movements. This pattern’s time frame can vary from several weeks to several months and is deemed by many traders as a rare occurrence. In case of Rounding bottom normally half time of total pattern time is required to achieve the target of Rounding bottom pattern.
Current Market price of Relaince is RS 1251 on 27-03-2017. Therefore based on above minimum return Investor will be getting is 15.9%. The said target will be achieved on or before 505 days i.e. Return per year will be minimum 11.49% p.a. which is above bank FD rate of 7.5% p.a. In addition to the said expected return of 11.49% p.a. , Dividend yield is 0.82% p.a. Hence total return expected is 12.31% p.a. Reliance is a Sensex script & NIFTY script therefore security is also very high.
Reliance script is making higher top higher bottom formation from 27-03-2015 which is also a good sign as far as technical analysis is concerned.
Therefore based on Technical analysis Reliance is a buy.
Whatever I have mentioned above is visible in 5 years chart of Reliance shown below;
Rounding bottom target of RS 1,450/- is also matching with higher Bollinger band of Reliance which is placed at RS 1,415/-. Hence RS 1,415 & RS 1,450 target of Reliance can be considered at confluence zone i.e. high probability that the said targets will be achieved and at this level price of Reliance will take resistance i.e. before moving further up price of Reliance will consolidate at this level between R 1,415 & Rs 1,450.
What is the meaning of a Bollinger Band?
A Bollinger Band, developed by famous technical trader John Bollinger is plotted two standard deviations away from a simple moving average. the price of the stock is bracketed by an upper and lower band along with a 21-day simple moving average. Because standard deviation is a measure of volatility, when the markets become more volatile, the bands widen; during less volatile periods, the bands contract.
BREAKING DOWN “Bollinger Band”
Bollinger Bands are a highly popular technical analysis technique. Many traders believe the closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.
What is the meaning of Confluence Zone?
The combination of multiple strategies and ideas into one complete strategy. Confluence occurs when two separate ideas/strategies are used together to form an investment strategy that is in line with an investor’s risk profile and goals. This term can also be used when doing technical analysis, by looking at charts and developing levels where different indicators are combined to help identify possible opportunities.
So here Confluence Zone Targets are RS 1,415 higher band target of Bollinger Band & RS 1,450/- target as per Rounding bottom pattern i.e. there is a high probability that Target Price of RS 1,415 to RS 1,450 will be achieved and Price of Reliance will consolidate between the said band before moving further high.
Now we will also carry out financial analysis of Reliance Industries Limited.
What is Price Earning Ratio?
Price Earning Ratio can be found out by Market Price Per Share / Earning Per Share
If Price Earning Ratio is lower then Industry Price Earning Ratio then one can conclude that at present, price of script is understated and can be increased further to match with Industry Price Earning Ratio.
Price Earning Ratio of Reliance is 14.11
Industry Price Earning Ratio of Reliance is 18.59
Hence based on Price Earning Ratio of Reliance, expected price of Reliance can be Rs 1251/14.11*18.59 i.e. RS 1648/- Therefore return expected from Reliance based on P/E Ratio is 31.73%.
What is Book Value per share?
Book Value = Net Assets / No. of shares.
Book Value Per Share of Reliance is 749.43 i.e. 1.67 times its actual market price.
I am comparing few Important information of Reliance Industries with its peers in following tabular format:
|Data of Reliance Industries with its Peers|
|Name||Last Price||Market Cap.||Sales||Net Profit||Total Assets||Book Value Per Share||Price to Book Value|
|Essar Oil||262.9||38,138.07||83,206.00||1,521.00||30,628.89||26.86||9.79||Not traded in last 30 days|
Table Source- http://www.moneycontrol.com
Based on above data we can conclude that Reliance is first in terms of Price, Market Capitalization, Net Profit & Total Assets and Reliance is second in terms with Sales as compared to IOC which is first as far as Sales is concerned. Therefore based on totality one can conclude that Reliance is a Market Leader in its main core Industry. It is always advantageous if we buy shares of a Market Leader of a particular Industry.
I have done simple average of Industry Book Value of above 7 scripts excluding Essar Oil (as the same is not traded from more than one month & Price to Book Value was very high as compared to others) & the same is coming to 3.
Price to Book Value of Reliance is 1.67 as against Price to Book Value of Industry which is 3 which implies that based on Book Value per share study Price of Reliance can be
1251/1.67*3 i.e. Rs 2,247. Therefore based on Price to Book Value per share of reliance as compared to Industry it can touch RS 2,247 i.e. 79.62% higher.
|Study Name||Type of Study||Target Price||% Return Expected|
|Rounding Bottom Pattern||Technical Analysis||RS 1,450||15.90%|
|Bollinger Band (upper band)||Technical Analysis||Rs 1,415||13.10%|
|Price Earning Ratio||Fundamental Analysis||RS 1,648||31.73%|
|Book Value Per Share||Fundamental Analysis||RS 2,247||79.62%|
Following are the important Ratios/other financial details which is showing almost/most probably an increase year after year which is also very positive sign to buy the script of Reliance:
|Basic EPS (Rs.)||84.66||70.25||68.05||64.82||61.21|
|Diluted EPS (Rs.)||84.66||70.25||68.05||64.82||61.21|
|Cash EPS (Rs.)||114.15||96.44||95.21||94.36||96.1|
|Book Value [Excl Reval Reserve]/ Share (Rs.)||741.28||667.98||609.76||554.17||498.22|
|Dividend / Share(Rs.)||10.5||10||9.5||9||8.5|
|Net Profit/Share (Rs.)||84.62||70.21||68.02||65.04||61.27|
|PBIT Margin (%)||16.36||9.67||7.95||8.13||8.61|
|PBT Margin (%)||15.31||8.95||7.13||7.29||7.8|
|Net Profit Margin (%)||11.75||6.9||5.63||5.82||6.07|
|Enterprise Value (Cr.)||424,125.00||344,442.92||349,271.40||254,803.73||263,781.58|
I will quote here few important words told by Late Shri Dhirubhai Ambani.
“Our dreams have to be bigger. Our ambitions higher. Our commitment deeper.
And our efforts greater. This is my dream for Reliance and for India.”
It the similar line Shi Mukesh Ambani has launched Rilance Jio and once again Reliance has created history as Reliance Jio has got 100 million subscribers in just six months of launch.
Reliance Jio plans to overhaul the telecom industry’s revenue structure and is banking upon India’s mobile data consumption opportunity to drive up revenues in the next five years. The company expects to corner a 50 percent revenue market share by FY21 and operating margins of over 50 percent.
If we will add valuation of Reliance Jio then again Price of Reliance will zoom like anything.
Based on above it appears that no one can stop journey of Relaince which was started by Late Shri Dhirubhai Ambani in 1957 from 500 sq. feet office in Masjid Bunder, Mumbai for Yarn Trading.
The Securities and Exchange Board of India, on Friday dated 24-03-2017 banned Reliance Industries and 12 others from equity derivatives trading for one year and directed the form to disgorge nearly Rs 1,000 crore for alleged fraudulent trading in a 10 year old case. However company has issued Media Release dated 24-03-2017 titled “RIL to appeal SEBI Order.” As the company is a giant company hence the same is capable of fighting with the SEBI & for such a big company RS 1,000 crore is just 0.23% of its Market Capitalisation which is not material. When trend of any script is up then such negative news is actually creating an Opportunity for long term Investor/Trader to buy the script of Reliance on declines.
Conclusion : Reliance Industries is clearly a buy from the point of view of both the disciplines namely Technical Analysis & Fundamental Analysis for medium to long term.+
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