by Ritmbarah Arora
Amid positive news for the stock market in early November - with Finance Minister Nirmala Sitharaman announcing an alternative investment fund to help the real estate sector finish pending housing projects - Reliance Industries was back in the headlines after hitting a record high in share price post its Q2FY20 result on October 31, 2019.
There has been a lot of action in recent weeks for Reliance Industries. The company has cut its base price for new gas from KG-D6. Saudi Aramco has launched its prospectus for the world’s biggest IPO with its proposed investments to acquire 20 percent in Reliance Industries Limited (RIL) oil to chemicals business. The Aramco IPO comes with the potential largest ever company valuation of estimates ranging from $1.2-2.3 trillion.
Quick Takes:
- RIL cuts base price for new gas by about 7 percent after key customers protested the high base price
- Reliance has put off bidding for the gas twice a month as the e-bidding was to happen on October 11 which was first put off to November 6 and later to November 15
- Reliance and BP are developing three sets of discoveries in KG-D6 block which are R-Cluster, Satellites and MJ by 2022
- Saudi Aramco released a prospectus highlighting proposed plans to acquire a 20 percent stake in the oil and chemicals business of RIL
- Brokerage firm UBS raised the target price of Reliance stock from Rs 1,500 to Rs 1,750
Oil and gas plans keep Reliance stock on upswing
Headquartered at Mumbai, Maharashtra, Reliance Industries Limited (RIL) is a multinational conglomerate company. The company owns businesses engaged in energy, petrochemicals, textiles, natural resources, retail and telecommunications across India. RIL is the largest publicly traded company in India by market capitalization and the largest company in India as measured by revenue surpassing Indian Oil Corporation recently.
RIL is seeking natural gas with plans to produce from newer fields in the Bay of Bengal KG-D6 block. The company has cut its base price by about 7 percent after key customers protested over the high base price. RIL along with its partner BP Plc are seeking bids from potential users for the 5 million standard cubic metres per day of natural gas they plan to produce from the R-Cluster Field in KG-D6 block from mid-2020.
Bidders have been asked to quote a price, supply period and the volume of gas required. Reliance had initially set a floor with a minimum quote of 9 percent of dated Brent price; which consumers saw as a very high price considering that imported LNG in the spot market is available at around USD 4 per mm Btu rate. Reliance later lowered the minimum quote to 8.4 percent of dated Brent price to mollify consumers. RIL has already put off bidding for the gas twice a month as the e-bidding was to happen on October 11 which was first put off to November 6 and later to November 15. Reliance and BP are developing three sets of discoveries in KG-D6 block which are R-Cluster, Satellites and MJ by 2022.
Apart from the cutting of base price, RIL has also been in the news for the Saudi Aramco proposed investment plans. Saudi Aramco has launched 658-page prospectus on Sunday, November 10 with its proposed investments in RIL in the column for proposed acquisitions. "The Company has recently entered into non-binding agreements regarding the expansion of its downstream business in Asia, including entering into a non-binding letter of intent with Reliance Industries Limited on August 12, 2019 to purchase a 20 per cent stake in its oil to chemicals division,” as per the prospectus. Since the announcement of the pact with Saudi Aramco, the share price of RIL surged by 4%.
The global brokerage UBS reiterated its buy advice and raised target price for the stocks of RIL, post which the share price rose by 1.18 percent after two days of consecutive fall on November 7. "Our understanding from interactions with management is that the strategy would optimise platform entity capital structure with fair value of $60-70 billion, and facilitate early monetisation and potential partnerships with global platform companies like Alphabet, Amazon and Alibaba," UBS said. The target price of the stock was initially Rs 1,500 which later was increased to Rs 1,750 by UBS.
