Reliance rallies on bonus plan, headwinds remain

Reliance rallies on bonus plan, headwinds remain

New Delhi: Shares in Reliance Industries Ltd rose as much as 5.2% on Thursday morning, a day after the Indian energy giant announced a surprise bonus share issue but concerns remain over falling refining margins and a pending legal dispute.

Reliance, which the market values at more than $70 billion, proposed late on Wednesday to issue one bonus share issue for every held, a move seen soothing investors following the stock’s recent underperformance to the market.

The stock had fallen nearly 4% at Wednesday’s close since it raised $660 million from treasury share sale announced on 17 September, while the broader market has risen 0.8%.

“It is an act of playing to the gallery with little fundamental change for the stock," V K Sharma, head of research at Anagram Capital said.

Also Read RIL bonus issue to shore up support

“They still have a lot of treasury stock, which they might want to sell in future. This looks to me more as a move to support the price," he said.

Reliance’s chief financial officer, Alok Agarwal, said on Wednesday the current treasury stock was valued at Rs40,000 crore ($8.6 billion).

At 11.20 am, shares in Reliance, which has nearly 14% weight in the main BSE index, were trading 2.4% up at Rs2,150 after hitting 2,209, in a Mumbai market that was up 0.2%.

The stock is up about 75% so far this year, almost in line with the broader market’s performance.

Headwinds Ahead

Reliance, headed by billionaire Mukesh Ambani, and Reliance Natural Resources that is controlled by estranged younger brother Anil, are battling over a gas-supply deal agreed upon when the Reliance empire was split between the two in 2005. The case will be heard in the Supreme Court on 20 October.

CFO Agarwal said on Wednesday the company was on track with the production ramp-up for its KG D6 oil and gas fields off India’s east coast, and has the financial flexibility to make further investments.

Still, lower refining and petrochemical margins could offset higher production and lead to a “weak" performance for the company during the September quarter, brokerage CLSA said in its earnings preview published earlier this month.

Reliance is yet to give a date for its quarterly results.

The company released on Wednesday restated results for the 2008-09 year ended 31 March to reflect the absorption of its Reliance Petroleum unit with effect from 1 April 2008.

Net profit for the year was Rs15,296 crore ($3.3 billion) and net turnover stood at Rs1.5 trillion.