What are brokerages making of RIL-Atlas Energy JV?

Below is a verbatim transcript of his comments on CNBC-TV18. Also watch the accompanying video.

This acquisition of Atals’ Marcellus shale clearly gives Reliance some headstart into resource plays. The importance of which was clearly highlighted when Exxon Mobile spent about USD 41 billion acquiring XTO which is amongst the biggest players in this resource based plays. Initially at first the valuations looked a bit expensive, USD 1.7 billion for 1,20,000 acres comes to about 14,166 per acre something that is also highlighted by CLSA.

In its report it says that RIL’s JV with Atlas is first of its many inorganic growth moves and at USD 14,000 an acre, the deal is not very cheap. The point is that this needs to be taken with a bit of an understanding that Reliance is going to pay an upfront of just USD 339 million. The rest is to be paid over about five and a half years. Discounting that at 10%, Goldman says the deal is valued about 11,629 per acre and it sees that further participation could bring down the overall NPV to 8,500 per acre.

Most of the deals happened in this range so it becomes not very expensive. Goldman also goes on to say that RIL’s share of the JV’s NPV expect that USD 2.2 billion which is 3% increment to its current NAV. This is something that most other brokerages also say. Citi says it is a good strategic fit and it sees the NPV accretion at USD 2.8 billion to USD 4.9 billion which adds about Rs 38-66 per share and it has maintained its buy with a target of Rs 1,100.

Macquarie says that Atlas’ current EV is closer to USD 2.5 billion and estimates of 40% stake of its core assets to be worth about half a billion dollars and it is maintaining its 12 month SOTP based target price at Rs 1,293.