RNRL case win to benefit Rel Power too: Tulsian

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RNRL case win to benefit Rel Power too: Tulsian

Commenting on the verdict, SP Tulsian of sptulsian.com said that the judgment would lead to Reliance Industries to suffer losses to the tune of Rs 3,600 crores. He does not expect RNRL to be allowed to trade in the interim period till the Dadri project is created, he said. Tulsian Expects Reliance Power to benefit more that RNRL.

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Q: Should one go with this as final ruling on this matter or do you think it will be contested and can even be overturn by even Reliance Industries in the Supreme Court?

A: I will give only 33% weightage to this ruling because you have the other fronts where it can be fought on. I do not see any reason why Reliance Industries will not move to the Apex court, the case will now get litigated there also with the intervention of the government this time because earlier they were not party to this dispute. Now they definitely will join the party. The supremacy of the mother's verdict which has been kept in this legal orders also though legal orders are always binding but here again they have said that if they have any ambiguity and all sort of things they should go back to Kokilaben to get those things resolved. So I will take this as a one third victory for RNRL because you have other fronts to fight on.

Q: If you work with this current price though of 2.34 what does it mean potentially for Reliance Power as well?

A: Eventually it will result in lower cost of production. If you see the present scenario, when crude is ruling at USD 70 per barrel and Reliance Industries has signed purchase agreements with the users, so I do not think that's really a point. So the only benefit to Reliance Power will be the raw material cost going down - whatever power they produce from 28 billion cubic meter of gas, they will have to pay about Rs 3,600 crore less. So there would be that much increased profitability for Reliance Power but that is obviously once the power projects goes on stream.

Q: The counsel for RNRL was saying that the two options lined out by the court are (a) they can go back to Kokilaben and (b) they can go back to the CLB (Company Law Board) as well. What do you think will be the most likely outcome post a month that this dispute will head to the Supreme Court or that it will be resolved by either of the other two parties mentioned?

A: I do not know whether they can move to the CLB but obviously the appeal lies in Supreme Court and as I said the supremacy of the mother has been maintained on top of the other entire alternative or the available remedies or the jurisdiction against this order. So these two options are open in my view for both the parties.   

Q: Does it have any implications or ramifications for the price at which Reliance would sell gas to fertiliser companies?

A: The only thing that can be impacted is the agreement with NTPC for the 12 million cubic meters but that case is fought on a different line. If it can really impact, it can only impact the agreement with NTPC for Kawas and Gandhar project for 12 million cubic meters but otherwise for the other power project buyers and fertiliser the USD 4.2 per mmbtu prices will prevail.

Q: What's fair value for RNRL now in your eyes, it's already at Rs 107 after this ruling?

A: I will not take this as a profits accruing to RNRL. When the demerger took place all the plants of power generation were not crystallised. In fact they have created a conduit or maybe a separate company by which the Anil Ambani Group has secured the right to procure this much gas from them. I do not think that there will be a clause or there will be an agreement between RNRL and Reliance Power where they will be supplying 4.2. If they will be doing that immediately that will be questioned or challenged by the Reliance Industries at a later stage.

So what RNRL eventually will get - is some commission of say 10-20-30 cents and ultimately the power will be supplied to Reliance Power. So the major portion of the profitability would get accrued in Reliance Power and not in RNRL. But since we do not have that clarity right now and people are not able to speculate or punt on Reliance Power, the entire benefit or the entire increase in the share price is now been seen in RNRL which in my view is not correct.