Shale gas front runner in RIL growth story: What analysts are saying

Even though shareholders had several queries about Reliance Industries growth plans, especially in the telecom space, chairman Mukesh Ambani remained tight-lipped about his 4G roll out plans but did give out big investment numbers. He also highlighted that shale gas will be its prime growth focus in the near future.

“Production from shale gas will be in excess of one third of our aggregate production this year,” RIL chairman Mukesh Ambani said during the annual general meeting, adding that the company’s revenues have doubled from US shale gas.

An Economic Times article, quoting analysts pointed out that shale gas is going to be the front runner in Reliance’s growth story as its production might just exceed that of KG-D6 basin.

AK Prabhakar, senior vice president at brokerage Anand Rathi told_Economic Times_ , “Telecom biz and shale gas are likely to become the next ‘cash cows’ for RIL. The revenue contribution from shale is 60 per cent in last quarter.”

“And if revenues from the shale gas are going to double, then it would be more than Indian KG-D6 contribution,” he added.

The firm’s share of natural gas output from its US shale gas operations has reached over 11 million standard cubic metres per day against its share of output of just below 15 mmscmd it is currently seeing from the Krishna (KG D6 fields.)

RIL through its subsidiaries has 3 separate joint ventures in the US for shale gas business and has uptil now spent $6 billion in these ventures. The company’s international shale gas operations have significantly contributed to FY13 results and are likely to add sustainable revenues going ahead as well.

Analysts thus expects RIL’s US shale assets to become more meaningful over the medium term as production ramps up and Ebidta from shale joint ventures grow.

Energy sector expert Narendra Taneja pointed that Ambani during the AGM spent a lot of time explaining the exploration and production (E&P) business and the amount of investments RIL plans to make into the business, including shale gas.

“In the industry, for the last couple of years, there have been all kinds of whispers; people have been saying Reliance has started losing interest in E&P business. However, the message he (Mukesh Ambani) has given now to the shareholders, as well as beyond the annual general meeting (AGM), is that on the contrary Reliance is actually going to focus even more on E&P business by consolidating and focusing on certain countries,” he told CNBC-TV18.

Meanwhile, RIL is also betting big on its telecom business Reliance Jio. Stating that data services would be more widely available, Ambani said that the broadband prices are expected to fall drastically with the company’s telecom foray.

Announcing the company’s plans for the next 12 months, Ambani said: “We at Reliance Jio foresee making rapid progress over this period towards launching our services across India.’'

From less than 7,000 employees a year ago, most of them based in the company’s Navi Mumbai campus, the Reliance Jio team has a national footprint of over 3,000 professionals now and the company plans to strengthen the team to nearly 10,000 professionals in the next one year.

But the focus of the 39th AGM of RIL was more on RIL’s petrochemical business as the company wants to become one of the top five petrochem producers in the world, SP Tulsian, who closely tracks the oil & gas major told CNBC-TV18.

“They are doubling the capacity of Paraxylene at Jamnagar which itself is very encouraging,” he told CNBC-TV18 in an interview.

However, for Tulsian the surprising part was investment of Rs 1.5 lakh crore in next three years. “The company continues to remain debt-free on a net basis. Does it mean that we are talking of the cash accrual of the company of Rs 150,000 crore in next three years, which is now at about Rs 25,000 crore?,” he questioned.

Reliance, India’s fourth-largest company by market value, has been under pressure from investors worried by its slowing natural gas business and its drive into consumer sectors such as telecoms and retail.

Shares in Reliance were closed the day down 1.03 percent at Rs 792.30. The stock was about 0.5 percent lower before Ambani began his speech.

Prakash Diwan, Altamount Capital Management said, “Essentially Ambani tried to put to rest some of the disappointments that the stock had in terms of the E&P drag.”

“If you want to buy into the stock at Rs 800 area, a 25 percent appreciation in the next 12 months comfortably could be seen,” he added.

Disclosure: The Reliance Group has funded the promoter of Network18, which publishes Firstpost