Reopening of fuel pumps fuels rally in RIL

Reliance Industries rose 2.16% to Rs 2223.15 at 11:20 IST on reports the company has reopened 900 fuel stations which were shut down when state firms were selling heavily subsidised fuel.

On BSE, 4.05 lakh shares were traded in the counter as against an average daily volume of 10.78 lakh shares in the past one quarter.

The stock hit a high of Rs 2225.90 and a low of Rs 2175 so far during the day. The stock had hit a 52-week high of Rs 2490 on 19 May 2009 and a 52-week low of Rs 1033 on 2 December 2008.

The stock had outperformed the market over the past one month till 24 November 2009, rising 6.29% as compared to the Sensex's 1.91% fall. It outperformed the market in past one quarter, gaining 10.22% as against 9.61% rise in the Sensex.

India's largest private sector company by market capitalisation has an equity capital of Rs 1643.12 crore. Face value per share is Rs 10.

The current price of Rs 2223.15 discounts the company's Q2 September 2009 annualised EPS of Rs 93.78, by a PE multiple of 23.70.

In March last year, Reliance Industries (RIL) had to shut down company-owned pumps as subsidised sale by state oil marketing firms made private sales unviable. The government subsidises fuel sales to control inflation.

Essar Oil, another private refiner, and RIL had together captured about 17% of domestic retail market for diesel and accounted for 10% of petrol sales by 2005 before heavily subsidised sales by state-run firms knocked them out of the market.

When crude oil prices more than halved in three months from their $147 a barrel peak scaled in July 2008, retail sales by private firms became viable again.

The government forces state-run oil explorer Oil and Natural Gas Corporation (ONGC) to supply cheap crude to government-run oil marketing companies, who were also given oil bonds to compensate them for low-priced fuel sales.

Meanwhile, rating agency Standard & Poor's (S&P) said on Tuesday, 24 November 2009, that acquisition of the Netherlands-based LyondellBasell Industries will provide limited benefits to RIL.

The consolidated financial metrics of RIL could weaken over the next 12 months if it proceeds to acquire LyondellBasell, S&P added.

Earlier this week, RIL offered to take a controlling interest in LyondellBasell Industries when the latter exits bankruptcy. If a deal is struck, it would reportedly create a global energy and chemicals powerhouse with nearly $80 billion in combined revenue. LyondellBasell is the world's third-largest chemical maker, and both companies have oil-refining operations.

Luxembourg-based LyondellBasell filed for bankruptcy protection in January 2009, unable to meet its debt obligations after demand dropped for petrochemicals products during the global economic downturn.

RIL said it is reviewing a number of global opportunities for growth in its core business including LyondellBasell. The Indian firm said its offer is preliminary and subject to customary conditions including conduct of due diligence, documentation and receipt of creditor support.

RIL was suspected to be looking for overseas acquisition after the company raised Rs 3,188 crore by selling its treasury shares recently. The company had cash reserves of Rs 18,000 crore as on 30 September 2009.

RIL had been reported to be looking at certain distressed assets of LyondellBasell, but the offer makes clear that Reliance wants to take advantage of all the company's operations. LyondellBasell would help RIL with distribution networks in the key markets of the US and Europe, so the purchase is about more than just petrochemicals, reports suggested.

LyondellBasell was created in 2007 when Dutch chemical company Basell International Holdings BV paid $12.7 billion to buy Houston-based Lyondell Chemical Co. Basell is a division of Access Industries Inc. LyondellBasell is owned by ProChemie GmbH, a joint venture of Access Industries Inc. and Pro Chemie Holding.

LyondellBasell's unsecured creditors have filed suit alleging that Basell's 2007 buyout of Lyondell left the company with unmanageable debt, setting it up to fail. That could reportedly become a complicating factor as Reliance tries to reach a deal with LyondellBasell.

Meanwhile, RIL has set 27 November 2009 as record date for a liberal 1:1 bonus share issue. After market hours on 8 October 2009, RIL had announced a 1:1 bonus issue. Earlier, Reliance Industries (RIL) had issued a 1:1 bonus in 1997, 3:5 bonus in 1983, and 3:5 bonus shares in 1980.

Mukesh Ambani's RIL is embroiled in a legal feud with his brother, Anil Ambani, over pricing for natural gas stemming from the breakup of Reliance's businesses when the brothers determined they could no longer work together after their father died in 2002.

The Supreme Court commenced fresh hearings on 5 November 2009, in a natural gas supply dispute between the Ambani brothers after a Supreme Court judge withdrew from the hearing on 4 November 2009.

The apex court has been hearing the dispute over the supply of 28 million units of gas for 17 years at $2.34 per unit to the Anil Ambani-led Reliance Natural Resources (RNRL) from the gas fields off the Andhra Pradesh coast, awarded to Mukesh Ambani's RIL.

The price, tenure and quantity were all based on a family re-organisation pact in 2005, but RIL subsequently said it can only sell the gas for $4.20 per unit, as this was the price, the company claimed, that was fixed by the government.

RIL began production at the D6 block in the Krishna-Godavari basin off India's east coast last April 2009 and is currently producing about 42 million metric standard cubic meters of gas a day.

RNRL wants gas to be delivered to the later at $2.34 per million metric British thermal unit (mmBtu), based on some contractual agreements. But RIL says it can sell gas only at the government-mandated price of $4.20 per mmBbtu.

Reliance Industries manufactures petrochemicals, synthetic fibers, fiber intermediates, textiles, blended yarn and polyester staple fiber. The company also owns a petroleum refinery cum petrochemicals complex in Jamnagar, Gujarat that produces a wide range of products such as gasoline, superior kerosene oil and liquefied petroleum gas.

Reliance Industries' net profit fell 6.4% to Rs 3852 crore on a 4.8% increase in sales to Rs 46848 crore in Q2 September 2009 over Q2 September 2008. Gross refining margins (GRM) fell to $6 a barrel, the lowest in at least five years, in Q2 September 2009 from $13.4 a barrel in Q2 September 2008. The GRM is the difference in the price of refined product and the cost of buying crude. [From Internet]