Clarity on gas output; update on power, telecom expected: analysts

Clarity on gas output; update on power, telecom expected: analysts

Mumbai: Mukesh Ambani, chairman of India’s most valuable company, Reliance Industries Ltd (RIL), spoke of doubling its enterprise value to $160 billion (Rs 7.18 trillion) in less than a decade in his address to shareholders at last year’s annual general meeting (AGM).

He will take the podium again on Friday at the Birla Matoshree Auditorium in south Mumbai to speak to investors at the AGM for 2011-12.

With Ambani having elaborated on RIL’s long-term objective last year, analysts now expect him to offer details on the short-term steps the company intends to take to get there, beginning with plans for this fiscal year.

“In the last AGM, Ambani spoke about a three-five-year horizon for RIL. He should focus on the projects that he would execute in the next one year," said S.P. Tulsian, an independent stock market analyst who has been tracking RIL since 1977, when the company was listed.

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Ambani is expected to enlighten investors on gas output from RIL’s D6 block in the Krishna-Godavari basin (KGD6), India’s largest gas find, and on the telecom and power ventures announced last year but little heard of since.

“It would be disappointing if we do not hear anything about the issue of gas production from KGD6," said Alok Deshpande, a Mumbai-based oil and gas sector analyst at Elara Securities (India) Pvt. Ltd, the local arm of a UK brokerage.

In March, RIL informed the Directorate General of Hydrocarbons (DGH) that gas production from its field could slump to around 47 million cubic metres a day (mcmd) in 2012-13 from 51-52 mcmd now. Gas production from the field should have reached 60 mcmd by now, as the company had projected last year.

Tulsian said that as Ambani had in the previous two AGMs stressed on a robust KGD6 performance benefiting the company, he should explain what went wrong.

Apart from a brief statement posted on the bourses in response to reports about RIL’s disclosure to DGH, the company has not publicly explained the situation.

In February, London-based oil and gas company BP Plc picked up a 30% stake in 23 oil and gas blocks operated by RIL, including KGD6, for $7.2 billion, of which RIL has received $2 billion.

Apart from the cash, RIL expects to leverage BP’s expertise in deepwater drilling to resolve the problems at KGD6.

“Some vague indications aside, RIL has not said much on the issue (of declining gas production at KGD6), probably because they are yet to understand the issue fully themselves," said an analyst with the Indian arm of a foreign brokerage. He did not want his institution or himself to be identified as he is not authorized to speak to the media.

“It might take them another few months to understand the extent of the problem after BP starts examining the block," he said.

RIL’s stock has dropped about 10% this year. It ended Thursday at 951.85, up 0.54% on the Bombay Stock Exchange. The Sensex has declined 9.8% this year. On Thursday, it closed 0.62% down at 18,494.18 points.

Deshpande and Tulsian said investors will also be looking forward to hearing more on RIL’s plans for telecom and power.

Last June, RIL acquired Infotel Broadband Services Pvt. Ltd—the sole winner of a pan-India licence for broadband wireless spectrum in a government auction—for 4,800 crore.

At last year’s AGM, Ambani said RIL would adopt an asset-light approach and would foster strategic tie-ups to roll out high-speed wireless broadband services.

He also announced RIL’s plans to become a big power producer by bidding for ultra-mega power projects and building renewable and nuclear power generation capacities.

RIL has not shared more information with shareholders on these plans.

Analysts said Ambani is unlikely to make any big announcement on Friday, but some media reports claim he may reveal a $10 billion capex plan for the company’s petrochemicals business.

Last year’s AGM was marked by high drama building up to the event. Ambani’s estranged younger brother Anil was expected to make an appearance, after the siblings ended a five-year-long dispute by scrapping a pact that barred them from entering each others’ businesses.

The elder Ambani has said he hoped for a “harmonious relationship" with the Anil Ambani-led Reliance Group, which is present in both the telecom and power sectors.

Investors may be interested in hearing if any measure of cooperation between the two groups was on the cards, especially in telecom, said Tulsian.

Graphic by Yogesh Kumar/Mint