RIL's shale gas, telecom ops to drive stock rating: Experts

Oil and gas major Reliance Industries' Q4 earnings are likely to be ignored by the market on Wednesday, however positive developments on shale gas, upstream operations, telecom and retail businesses would drive stock ratings in future, experts and analysts told CNBC-TV18 today.

"Net-net we see that results are going to be a non-event for the stock but over a medium term we might upgrade the stock given the fact that there is lots happening around the E&P business which is a big value driver for the stock," Prayesh Jain, Analyst - Oil & Gas, IIFL said.
Reliance Industries' upstream operations have been suffering due to fall in KG-D6 output. However, the company has lined up huge investment to improve performance. "The company is focusing on putting in more money, bringing in better technology and BP has practically moved in as far as D6 is concerned," Narendra Taneja, Energy Expert observed.
According to Jain latest discovery in KG basin, new exploration and likely gas price hike are some of the positive drivers for the upstream business which will become the great value drive for the company in future.
There have been several positive developments in the company’s shale gas, telecom and retail businesses which may positively drive stock ratings in the future.
The company’s international shale gas operations have significantly contributed to FY13 results and are likely to add sustainable revenues going ahead as well.
“Shale gas is driving substantial profit growth for the consolidate company. The main thing for the shale gas business going ahead is how the prices in US move. …beyond FY16 or somewhere around that time when US starts exporting gas that would be the time when you might see the prices moving up in US and that can add substantially to profit growth and revenue growth for Reliance oil and gas business overall,” Jain said.
Mirroring his views Tuteja added, “With the US more or less preparing and president Obama facing a lot of pressure from the industry and also G20 countries specially India and China to lift ban on gas exports from the US which may happen if not full year but at least on partial basis any time soon. Once that happens you will see Shale gas prices would go for major correction to the advantage and benfit of producers such as Reliance in the country. ” Reliance is planning to increase its shale gas related investment in Canada. The company
Reliance’s shale gas business in the United States comprises of three upstream joint ventures, each with Chevron, Pioneer Natural Resources and Carrizo Oil & Gas and a midstream joint venture with Pioneer. Aggregate investments since inception of these joint ventures stood at USD 5.7 billion, as at the end of 4Q FY 2012-13, the company said in a release today. Reliance’s share of gross JV production for the full fiscal year stood at 118.5 Bcfe, showing a Y-o-Y growth of 127%.
The company which operates biggest refinery complex in Gujarat has started seeing results on investments in other new businesses. The company’s revenues from retail 42 per cent to Rs 10,800 crore as it continued to expand stores across the country. The retail business achieved cash break-even with earnings before depreciation, finance cost and tax expense (PBDIT) of Rs 78 crore.
On the other hand telecom subsidiary Reliance Jio Infocomm Ltd is all set to launch itsG services in few cities. The company recently signed a Rs 1200 crore deal with Anil-Ambani led Reliance Communications, which will allow Reliance Jio to use later’s inter-city fiber network infrastructure.
In the near term, RIL is expected to remain under pressure due to dismal KG-D6 production. Jain said that the company’s Q1 numbers definitely could see some pressure given that GRMs have fallen. He expects GRMs to be in the region of USD 9.5 per barrel in FY14.
“For petrochemicals we expect margins to be similar something what they have clocked in FY13 and the E&P segment is not going to do materially. So, possibly you might not see a substantial jump in profits for FY14 or possibly a marginal dip in profitability in FY14,” Jain said.
He sees FY15 as the key game changer going ahead for the company. He hopes new petrochemical projects to commence operations in FY15, and also sees revival in global demand along with hike in gas prices.  These factors could help company to post strong earnings in that period.