GRM or volumes? RIL is the biggest index mover today

Mukesh-Ambani owned Reliance Industries is the biggest market mover today and has surged nearly 5.5 percent to top the 50-share Nifty index.

On BSE, 7.33 lakh RIL shares were traded in the counter as against an average daily volume of 3.96 lakh shares in the past one quarter. The stock is currently trading at a three-month high on the Bombay Stock Exchange, up 4.90 percent at Rs 777. Meanwhile, the BSE Sensex is up 1.26 percent to 17,414.46.

The stock surged after reports that benchmark Singapore gross refining (GRM) have strengthened from the second week of July 2012 to average at $8 a barrel from $6.7 a barrel in the quarter ended June 2012.

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According to a Golmdman Sachs report, RIL’s refining margins were improving in July as oil demand rose in Asia, along with closures in US/Europe and new project delays. “We believe the market is over-estimating capacity additions and recovery in industrial activity could lead to positive margin surprise,” said the brokerage.

However, another report by Bank of America Merril Lynch said RIL’s FY12 GRM for the second half of the year was below Singapore GRM for the first time in its 12-year history. The risk is that RIL’s FY13 earning per share (bear case) could decline by 11 percent YoY.

Reliance posted its third consecutive drop in quarterly profit in the June quarter, but refining margins fell less than expected and treasury gains from its huge cash pile bolstered profits.

Meanwhile, an Economic Times report said that Reliance has agreed to share KG-D6 accounts with the national auditor under the terms of the production sharing contract, meetinga key demand of Oil Minister Jaipal Reddy ahead of a crucial meeting of the block’s management committee on Tuesday.

The oil ministry has convened a management committee meeting for RIL’s KGD-6 gas block, and is likely to discuss investment plans for KG-D6 block, which have been pending for the past two years.

Progress on RIL’s upstream investment has been held up for a long while due to lack of approvals, and the easing of tensions between RIL and the Government could lead to greater visibility on timelines of field development and subsequent production, said brokerage Edelweiss in a note today. “We reiterate our high-conviction, anti-consensus ‘Buy’ on RIL, noting that our worst case value of Rs 707 and base case value of Rs 906 make the risk-reward extremely favorable,” said the brokerage today.

Reliance Industries has also streamlined its promoter holding by bringing down the total number of promoter group entities to 55 – still the third highest for any Sensex-listed company.

Meanwhile, RIL has bought back 3.66 crore shares for about of Rs 2617.57 crore till 24 July 2012 under its ongoing share buyback program. RIL has set maximum buyback price of Rs 870 per share. The company has set aside Rs 10440 crore for share buyback.