Accumulate Reliance Industries: Prabhudas Lilladher

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Accumulate Reliance Industries: Prabhudas Lilladher

Prabhudas Lilladher has maintained its accumulate rating on Reliance Industries. As per the hearing, RIL will supply 28mmscmd KG basin gas to RNRL for a period of 17 years. This is likely to have a negative impact on RIL’s NPV for KG basin and FY11 EPS of RIL. However, there is a strong likelihood of RIL appealing in the Supreme Court.

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Prabhudas Lilladher has maintained its accumulate rating on Reliance Industries in its June 15, 2009 research report.

"The Bombay High court has finally ruled the gas pricing decision in favour of Reliance Natural Resources (RNRL) which entitles the company to procure gas from Reliance Industries (RIL) at USD 2.34 per mmbtu. RNRL will be thus entitled to get gas supply of 28 mmscmd for a period of 17 years.RIL-RNRL case hearing is definitely negative for RIL as RIL will have to sell the KG basin gas at USD 2.34/mmbtu. This is against the EGoM decided price of USD 4.20/mmbtu which is applicable to the existing customers (fertiliser and power players) and was incorporated in ours as well as street estimates."

"As per the hearing, RIL will supply 28mmscmd KG basin gas to RNRL for a period of 17 years. This is likely to have a negative impact on RIL's NPV for KG basin, future cash flows and FY11 EPS of RIL. We are envisaging three different scenarios and their effect on RIL estimates. One of the scenarios depicted includes, a scenario with similar case currently being contested by NTPC. However, there is a strong likelihood of RIL appealing in the Supreme Court as the current hearing will have negative implications on the ongoing case between RIL and NTPC. We have incorporated the effect of RIL-RNRL case hearing in our estimates with reduction in NPV for KG Basin by Rs75. We maintain 'Accumulate' on the stock," says Prabhudas Lilladher's research report.

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To read the full report click on the attachment......