Will on-going crisis at KG-D6 basin impact RIL stock

Amid reports on Relian ce Industries (RIL) warning the government of a possible shut down of KG-D6 in absence of investments approvals, analysts see a downward risk for the stock from its current levels. Brokerages on an average expect around 10% downside in RIL stock due to the ongoing KG-D6 crisis, but a few analysts say that .the market has already factored in the news. The company stock was marginally down to Rs 723.18 since morning.

Meanwhile, the company stock has been down around 3.5% compared with a 4% rise in Sensex since Jan 2012.

"Production from KG-D6 would have been a game-changer for RIL but  declining output from the wells and the latest one being the possible shut-down if fresh capex is not announced as mentioned in the media has become a concern"' Jagannadham Thunuguntla, head of research at SMC Global Securities told moneycontrol.com,  He also pointed out the scuffle between the government and RIL over incremental investments in the KG-D6 block will be a long drawn procedure.

Bank of America Merill Lynch in its report dated July 16 has also expressed concerns on the downward spiral in Exploration and Production (E&P) vertical of the energy giant. The firm has said that it sees a 14% YoY fall in FY13 EPS as gas estimates in the company's main KG-D6 block has been cut by 70%. Similarly, Angel Broking estimates the company stock to be impacted by around 6% in near term.

However, BofaML also points out that upside is possible in 2-3 years provided there is a recovery in gas output along with rise in gross refining margins and petchem capacity expansion.

Yogesh Patil from K.R Choksey adds, RIL's current stock price largely factors in KG-D6 crisis is an ongoing concern for quite sometime now. "Post FY16, RIL's stock performance should return to fundamentals with a focus on refining cycles, D-6 ramp-up and new drivers for growth, according to the guidance given by RIL in its annual general meeting this year," he says further adding that the stock doesn't react much to source based stories on KG-D6 crisis.