On a day when the Sensex closed almost flat, negative news dragged down the stock of Reliance Industries (RIL) around 1.8 per cent. News of an adverse report from the national auditor, reports of the upstream regulator refusing to recognise three of its gas discoveries and the company's weekend foray into insurance for which deal value was not disclosed, combined to give the Reliance stock the Monday blues.

Allegations of ‘gold-plating', which surfaced during the slugfest between the Ambani brothers not so long ago, returned to haunt RIL with news of a draft report of the Comptroller and Auditor General (CAG) of India.

The CAG has reportedly come down hard on the Petroleum Ministry and the upstream regulator Director General of Hydrocarbons (DGH) for alleged contraventions of terms in the KG-D6 field. Actions by RIL are alleged to have resulted in a sharp increase in the capital expenditure for the KG-D6 field, as a result of which the government's share of profit petroleum (which is computed after recovery of such expenditure) is likely to suffer.

Setback

In another setback, the DGH has reportedly refused to recognise three of RIL's discoveries in KG-D6, citing potential low reserves. This adverse development could push back RIL's plans to increase gas output from the KG-D6 field, troubles at which have contributed in big part to the lacklustre performance of the stock over the past several quarters.

After touching around 60 million standard cubic metre per day (mscmd), the output from the KG-D6 fields has decreased to less than 50 mscmd, as against the expected increase to 80 mscmd. The company expects its tie-up with global energy major BP (which has picked 30 per cent stake in RIL's oil and gas fields) to help it stem the decline, and get production back on track.

Insurance foray does not impress

Last but not the least, the market did not seem impressed by RIL's acquisition of majority (74 per cent) stake in the life and general insurance business of Bharti-AXA from Bharti Enterprises. The commercial terms of the deal have not yet been disclosed.

At present, Bharti-AXA is a minor player in the insurance business. While the entry into a highly capital intensive sector would help mitigate to some extent RIL's problem of plenty (its cash balance as on March 2011 was in excess of Rs 42,000 crore), the market reaction indicates that it is not comfortable with the company's repeated forays into areas unrelated to its core energy and petrochemicals business.

RIL's earlier foray into the hospitality business (acquisition of stake in EIH last fiscal) had also received a thumbs-down from the market.

In the backdrop of continued uncertainty about gas production ramp-up, adverse developments on the regulatory front are the last thing an already jittery market wants.

“Talk is cheap, show me the money (or rather the gas)” seems to sum up the market mood.

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