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The scrip of India’s largest private company Reliance Industries jumped 5.12 per cent to close at Rs 828.25 on the BSE on Monday.
According to traders, the positive news of the company’s significant new gas and condensate discovery in KG-D6 field announced on Friday evening led to the sharp upswing in the stock.
Mixed calls
Goldman Sachs and IDBI Capital in their latest reports on RIL, post the discovery, have reiterated a ‘Buy’ rating on the stock. However, some analysts remained sceptical given that the company has not announced the quantification of the reserve yet and felt it was ‘too premature’ to dub it as a game changer and go overweight on the stock yet.
Sumit Pokharna, Deputy Vice-President Research, Kotak Securities, said: “Other issues such as falling Gross Refinery Margins in first quarter of FY13-14 leading to significant fall in profits would be an overhang.
“Moreover, the shutdown of its Jamnagar refinery for a week would also result in a marginal dip in its volumes and this along with no production ramp up in its E&P (exploration and production) business is likely to ruin the show for the stock going forward.”
“Even if good reserve materialises, it will take time in terms of Government approvals, reserve certification and a minimum of 2-3 years for production to start. However, based on the sentimental impact of the news of the latest discovery, the stock may run up a little more before correcting. So investors should think of entering the stock once it goes below Rs 800 a share,” he added.
RIL said the appraisal programme for this discovery will be launched in the coming months to define scale and quality of the field.
However, taking a positive view of the new discovery, the Goldman Sachs report said: “This marks the first E&P success for RIL-BP following 18 months of remapping of the D6 block, helped by recent Government policy and approvals.”
‘E&P turnaround’
“If this discovery leads to a new commercial reservoir, it could meaningfully add to D6 reserves. RIL had said they would be mobilising a second rig into D6 in July 2013, which would aid in further exploration and work over operations in existing wells. As per the revised field development plan, RIL-BP are planning to drill the next well in MA field. Overall, we believe, this discovery further strengthens our view that RIL’s E&P business is turning around,” it added.
While recognising low refining margin and further weakness in petchem margins as key risks, the foreign investment bank reiterated a ‘Buy’ call on RIL with 12-m SOTP-based target house of Rs 1,070.
“We think RIL’s capex in core segments will lift its cash returns over the medium term,” said the report.
A Bloomberg report quoted Bernstein Research report as saying that the partnership between RIL and BP is starting to pay off.
“Initial flow rate and reservoir quality seems to be pretty attractive. However, we would wait for quantification of reserves post appraisal well drilling. This discovery reinforce our positive view on the stock and we maintain ‘buy’ rating on the stock,” said an IDBI capital report.
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