RIL-RNRL slugfest: Mkt prices in repeat of Bombay HC order

The market seems to have priced in a repeat of the Bombay High Court judgment wherein Mukesh Ambani-promoted RIL was directed to supply 28 million standard cubic metres (mscmd) of gas from the K-G basin to Anil Ambani-promoted Reliance Natural Resources (RNRL), according to a report by Goldman Sachs. The gas supply was to be for 17 years at $2.34 per million British thermal unit.

The market calculates that if the verdict goes against RIL, the latter will take a hit on its bottom line.

Goldman Sachs in its April 30 report says if RIL is not asked to supply gas at $2.34 to Reliance Power, the share could see an upside of Rs 17 per share to RIL’s D6 valuations.

This could mean non-availability of cheap gas for Reliance Power.

Goldman Sachs estimates Reliance Power to have a downside of about 50 per cent from the current market price and Reliance Infrastructure to be indirectly impacted owing to its 45 per cent stake.

If the ruling goes in favour of RNRL, Goldman Sachs estimates a negative impact of Rs 40 per share to RIL, namely D6 valuation impact of Rs 20 per share and E&P exploration impact of Rs 20 per share. It estimates RIL’s earnings per share for FY11 to decline 7.5 per cent.

For Reliance Power, however, the brokerage house estimates an upside of 16 per cent against 38 per cent for the company from current levels.

Also, analysts say a verdict in RNRL’s favour would create uncertainty over RIL’s existing gas sales agreements with power and fertiliser companies.

Goldman Sachs, however, adds that with market’s low expectation on positive outcome for RIL, the stock would benefit from removal of court case overhang.

RIL scrip was today down 0.96 per cent at Rs 1,010.90 and RNRL was down 0.22 per cent at Rs 68.35 on the Bombay Stock Exchange.