Stocks

Reliance Industries' underperformance may end

Anand Kalyanaraman BL Research Bureau | Updated on March 12, 2018

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The multi-billion dollar deal between Reliance Industries and BP could provide the much-needed fillip to the stock of the former. RIL has been under-performing the broader markets for quite some time now, mainly due to concerns over the declining gas output from the KG-D6 field.

The field's output which commenced in April 2009 had quickly ramped up to around 60 mmscmd in the December 2009 quarter. Expectations were high, with output slated to further increase to around 80 mmscmd in FY 2011. However, contrary to hopes, production hit a plateau and took a turn for the worse, declining to less than 55 mmscmd levels currently. This has been a major overhang on the stock which has declined around 2.8 per cent over the past year compared with the 13.8 per cent rise in the Sensex.

This is notwithstanding consistently strong results posted by the company over the past year, including in the recent December quarter when the refining and petrochemical businesses more than made up for the weakness in the oil and gas segment.

In this context, BP's top dollar valuation ($7.2 billion) for a 30 per cent stake in RIL's 23 oil and gas production sharing contracts could well be the boost the RIL stock needs. The deal could be seen as strong attestation of the potential the global energy giant sees in RIL's producing blocks, including the wells in the prolific KG-D6 field.

The markets seem to have caught a whiff of the impending closure of the deal which was announced after market hours on Monday. The RIL stock gained 2.04 per cent on Monday, compared with the 1.25 per cent rise in the Sensex.

Published on February 21, 2011

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