RIL in growth push
After a few relatively quiet years, there's a stream of positive news coming out of Reliance Industries. Anupama Airy reports. Inside India’s largest companyUpdated: Jun 05, 2013, 22:56 IST
After a few relatively quiet years, there's a stream of positive news coming out of Reliance Industries.
Its planned rollout of 4G telecom services this year is on track, it has struck what could be India's largest gas find in the Krishna-Godavari basin, its investments in the US shale gas sector have begun to generate revenues and rating agency Standard & Poor's (S&P) has rated it two notches above India.
But even as these developments cheer experts and analysts, investors should bear in mind that all these are long-gestation projects that will yield dividends only after a few years.
"RIL is a good bet for long term investors as the company has massive expansion plans," said Vijay Kedia, Director, Kedia Securities, a leading boutique investment advisory firm.
Shareholders can expect chairman Mukesh Ambani to throw more light on RIL's Rs 1,65,000-crore expansion plan at the company's 39th annual general meeting on Thursday.
But there are some causes for concern as well. RIL has not been able to arrest the fall in gas production at its existing gas fields in KG D6 (not to be confused with the new gas find mentioned earlier).
Then, lack of timely approvals for developing its new gas fields is another negative factor for the company and its partner, BP Plc. Also, petrochemicals, which accounts for a fifth of its business, is expected to come under pressure as capacity additions across the globe and weak demand eat into margins.
But what does a good S&P rating and the recent gas discovery by RIL mean for its investors?
For one, it will make it easier for the company to raise money in the international market.
"There is no surprise that S&P has given a higher rating to Reliance Industries. Over the past two years, it had deleveraged its balance sheet. Its refining business remains very cost-efficient; hence, it can expect good cash flows going forward," said Bhavesh Chauhan, senior research analyst, Angel Broking.
"The ratings upgrade was because of Reliance's strong balance sheet, especially its cash reserves of Rs 83,000 crore," said Deepak Ladha, executive director, Ladderup Corporate Advisory, adding that RIL's was rating was higher than India's as its growth prospects seem brighter.
Most analysts said they are positive about RIL, as the proposed revision of gas price from April 1, 2014 from $4.2 per unit to about $8 as recommended by the Rangarajan Committee will net the company huge profits.
"Even if gas prices rise to only $5.5 to $6 per unit, RIL's profitability will go up sharply. But it should be borne in mind that a revision in gas prices will depend on a number of economic and political factors," said Siddharth Shankar, director, Kassa Group, a financial services firm.
RIL shares gained 2.56% to end Wednesday at Rs 800.55 on the BSE. RIL was the top gainer on both the key indices - Sensex and Nifty.