RIL unlikely to be impacted if gas price not hiked

Major hangover on RIL that has led to pressure on stock prices is its participation in spectrum auction

The recent uproar against the government decision to allow gas prices affective 1st April 2014 is not a major concern feel analysts.

There is a procedure which the government has followed and based on the recommendations of the Rangarajan committee, the price hike has been undertaken.

Thus while on one hand a proper procedure, which has been followed by the Constitutional authority of the government to decide on the gas prices, also cannot be challenged.

The Aam Aadmi Party’s action on the same thereby is being only looked as a political gimmick to gain some mileage ahead of the Parliament elections to be held in during April-May.

Sachin Mehta analyst who tracks oil and gas at Centrum Broking feels that until Supreme Court intervenes and gives some guidelines to the government to stop implementation which though seems unlikely, the government will not reconsider its decision on gas prices.

As far as the impact on the companies in the gas production space is concerned, if the decision to hike gas prices is differed or rolled back, Mehta says that it is ONGC which is currently producing more gas (around 64mmscmd) will be more impacted as compared to Reliance Industries Limited which is just producing slightly more than 13-14 mmscmd (million Metric standard cubic meters of gas per day).

A similar view is echoed by other analysts such as Nitin Tiwari of Religare Capital markets limited. He says if the gas price hike is not implemented Reliance Industries’ fair value will see marginal impact of Rs 5-10 per share only.

During the quarter ending December’13 Exploration and Production Business Revenues for Reliance at Rs 1,733 crore were just 1.5% of Gross revenues of Rs 122,654 crore.

The segment contributed less than 5% at EBIT (earnings before Interest and Tax) levels. Thus though there may be some sentimental impact on stock prices of the AAP’s action against gas price hikes however it will not be substantial.

The major hangover on Reliance Industries that has led to pressure on the stock prices is its participation in the Spectrum Auction being held, feels Tiwari. The stock has corrected around 9% since mid-January to close at 807 levels on Thursday.

The clarity on how much investment the company makes in gaining spectrum will emerge only once the auction gets over. However the investments made in the telecom business will reap results over a period of time.

The telecom venture is likely to take 3-4 years to breakeven. Thus the investment in the segment will continue diluting gains made by the company from the Petrochemical segment feel analysts.