While the margins of India’s largest company, Mukesh Ambani’s Reliance Industries Ltd (RIL), are set to fall following the June 15 Bombay High Court order, the situation is far from dismal.
The ruling of the Bombay High Court on Monday — directing RIL to sell 35 per cent of the gas it would excavate from its D6 gas field in the KG basin to Anil Ambani’s Reliance Natural Resources Ltd (RNRL) at $2.34 (Rs 112 .32) per unit versus $4.20 (Rs 202) per unit to other buyers — was seen to hurt RIL, which stands to lose Rs 4,000 crore annually.
Analysts and experts said that the rate of $2.34 per unit would not just derail RIL’s revenue projections from gas sales, but also wreck the future profitability of India’s largest private company.
According to the numbers worked out by RIL itself in a recent letter to the petroleum ministry, a copy of which is available with HT, RIL’s actual cost of gas production is $0.89 (Rs 42) per unit.
“We hereby submit the provisional estimates of post well head cost for the year 2009-10, which works out to be $0.8945 (per unit) for the certification of the Directorate General of Hydrocarbons (DGH),” RIL said in a May 22, 2009 letter to the petroleum ministry and the DGH (the oil regulator).
This shows that RIL would be making a 60 per cent net margin or a net profit of $1.45 (Rs 68) per unit in case it has to sell gas to RNRL at $2.34 per unit, against the government approved price of $4.21.
And as far as gas sales to power and fertiliser companies at the government approved price of $ 4.21 per unit go, its profit margins would be even higher, at $3.30 (Rs 155) per unit, or 80 per cent.
A RIL spokesperson refused to comment. However, sources close to the company said the price of $2.34 per unit is still not the final price as is being projected by RNRL.
“This price is still to be approved by the government,” the source said.