Shares of Reliance Industries (RIL) could remain under pressure in the near term, following downgrades in price target and earnings by brokerage houses in the wake of the adverse court ruling in the gas dispute.
“The verdict will have no immediate impact on RIL’s earnings in the short term,” said Sanjeev Prasad, executive director and co-head institutional sales, Kotak Securities.
“This is because the ruling is valid when RNRL and its affiliates are in a position to use the gas that will be three years from now when the power plants come up. Till then, RIL can sell gas at $4.2 per million Btu (British thermal unit). Once the verdict comes into play, valuations are bound to get impacted. Direct impact on the share price will be to the tune of Rs 70 per share and indirect will be around Rs 90, if one were to factor in compensation to the government in the form of royalty, IT etc. The total impact would, as such, be around Rs 160 per share,” he said.
According to Citigroup Global Markets, in a worst case scenario, RIL’s estimated earnings per share for FY11 could dip to Rs 151 against the current forecast of Rs 165.
“Our SOTP (sum of the parts) could dip to Rs 1,600 vs our earlier base case of Rs 1,840, due to a decline in the E&P (exploration & production) contribution to the SOTP. The value of discounted cash flow could decline to Rs 467 per share from Rs 521 per share earlier,” a flash note by the brokerage said.
Analysts said RIL’s stock price on Friday, at Rs 2,357, factored in the sale of gas at the government-approved price of $4.2 mmBtu, causing the stock to fall 7.5%, or Rs 176, to Rs 2,180.45 on Monday, after the adverse court ruling. Market participants are awaiting clarity on the government’s decision on the profit-sharing mechanism.
“It is also not clear whether RIL has to pay the government a share of petroleum profit at $4.2 per mmBtu or at the court directed price of $2.34 per mmBtu. In case, the government asks RIL to pay its share of profit on government-approved price, there would be a substantial hit on KG-D6 valuations. According to our calculations, the impact on valuations will be to the tune of Rs 170 per share,” says Alchemy Share and Stock Broker, which has a ‘reduce’ rating on the stock.
“The verdict will have no immediate impact on RIL’s earnings in the short term,” said Sanjeev Prasad, executive director and co-head institutional sales, Kotak Securities.
“This is because the ruling is valid when RNRL and its affiliates are in a position to use the gas that will be three years from now when the power plants come up. Till then, RIL can sell gas at $4.2 per million Btu (British thermal unit). Once the verdict comes into play, valuations are bound to get impacted. Direct impact on the share price will be to the tune of Rs 70 per share and indirect will be around Rs 90, if one were to factor in compensation to the government in the form of royalty, IT etc. The total impact would, as such, be around Rs 160 per share,” he said.
According to Citigroup Global Markets, in a worst case scenario, RIL’s estimated earnings per share for FY11 could dip to Rs 151 against the current forecast of Rs 165.
“Our SOTP (sum of the parts) could dip to Rs 1,600 vs our earlier base case of Rs 1,840, due to a decline in the E&P (exploration & production) contribution to the SOTP. The value of discounted cash flow could decline to Rs 467 per share from Rs 521 per share earlier,” a flash note by the brokerage said.
Analysts said RIL’s stock price on Friday, at Rs 2,357, factored in the sale of gas at the government-approved price of $4.2 mmBtu, causing the stock to fall 7.5%, or Rs 176, to Rs 2,180.45 on Monday, after the adverse court ruling. Market participants are awaiting clarity on the government’s decision on the profit-sharing mechanism.
“It is also not clear whether RIL has to pay the government a share of petroleum profit at $4.2 per mmBtu or at the court directed price of $2.34 per mmBtu. In case, the government asks RIL to pay its share of profit on government-approved price, there would be a substantial hit on KG-D6 valuations. According to our calculations, the impact on valuations will be to the tune of Rs 170 per share,” says Alchemy Share and Stock Broker, which has a ‘reduce’ rating on the stock.
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