Output delay results in RIL share fall

India's biggest company by market value, Reliance Industries (RIL), saw their shares fall by 0.72 per cent on Monday to close at Rs 2,037 after announced on Sunday that the company would start pumping natural gas from the KG Basin in the January-March quarter, which is within the broad target of the company but later than the government's forecast that production would begin by November.

Investors failed to favour the company’s explanation that the delay in gas production is because of tough weather conditions and a tight supply chain. This is even after RIL Chairman Mukesh Ambani's announcement yesterday that oil has started flowing in from the Krishna-Godavari basin and the total hyderocarbon output from the block would raise to 550,000 barrels of oil equivalent a day (boed) in six to eight quarters.

According to independent equity advisor S P Tulsian, the stock did not get much boost as Mukesh Ambani said nothing new by announcing RIL’s crude generating capacity. “The markets were also expecting RIL to start gas production at the KG basin this month, which will now be delayed by over four months,” he said.

Tulsian further said that production of 5,000 barrels of oil per day can give RIL an annual revenue of close to Rs 800 crore, calculated at $100 per barrel, with an exchange rate of Rs 45 per dollar.

Thus, in FY09, RIL may have a top line contribution of Rs 500 crore from the KG basin oil production, which may result in profit after tax of Rs 200 crore, considering the company’s 90 per cent market share in the country. There may not be any contribution to the company from gas in FY09.

Author: Jo Amey