RIL Vs RNRL – Impact of Probable Court Verdict
May 1, 2010
The battle for scarce Natural Resource – Gas between RIL’s Mukesh Ambani and RNRL’s Anil Ambani is expected to end with the verdict of APEX Court in the next few days. Lets look into the impact for both the companies.
Favorable result for RNRL – immediate gas as at US$2.34/mmBtu. Assuming RNRL wins a direct verdict and RIL has to start supplying gas to it immediately at US$2.34/mmBtu. This will lead to RIL’s FY11 EPS would decline by 7.5% negatively impacting Rs40/sh to RIL – D-6 valuation impact of Rs20/sh and E&P exploration impact of Rs20/sh. For Reliance Power, we estimate upside of 16% vs. 38% for Reliance Infrastructure from current levels, as we believe some benefit of cheap gas is already reflected in Reliance Power Ltd’s share price.
Favorable result for RIL – Not having to supply gas to RNRL, or 2) at a gas price of US$4.2/mmBtu, or 3) supply cheap gas only upon completion of Reliance power plants would all be positive for the RIL stock. Assuming no gas supplies to RNRL and hence to Reliance Power Ltd gas based plants, we estimate Reliance Power to have downside of about 50% from current market price. Though RELI would be indirectly impacted owing to its 45% stake in Reliance Power, we believe this is already reflected in Reliance infrastructure share price.