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| Edited By: Pallavi Pengonda |Source: DNA |Updated: Mar 17, 2018, 03:23 AM IST
According to news reports, India largest private company, Reliance Industries (RIL) is said to be in discussions with US-based Atlas Energy to invest in its shale assets.
RIL wants to partner with Atlas Energy to develop 584000 acres in Marcellus shale in the US. RIL is reported to shell out $1-1.5 billion for the transaction, implying a valuation of $5100 per acre. Recent transactions were bid higher, at an average of $6600.
Analysts maintain that deal related news flow is likely to circulate in the near-term. This is because RIL seems to have an obvious appetite for inorganic growth given its strong cash flow outlook and gross cash of about $4 billion.
As government profit share increases, ebitda from KG D6 is expected to decline and RIL needs to make up for that. However, even if the Atlas transaction materializes, it is not expected to add much to RIL’s valuations according to analyts. Given that, RIL would possibly have to look at more options.
Meanwhile, RIL is expected to post strong financial results for the quarter ending March 2010. Higher gas production and strong petrochemical and refining margins in March quarter should boost numbers. “We project 29% sequential growth in net profits for RIL.
We assume $100 million for dry wells expense, otherwise growth could be higher at 39%,” wrote Vinay Jaising, Mayank Maheshwari & Rakesh Sethia of Morgan Stanley in a note to clients on March 17, 2010.
The benchmark Singapore refining margin has increased to about $5.1 per barrel so far in this quarter. The same stood at $1.9 per barrel in December 2009 quarter. On the other hand, strong domestic consumption augurs well for the petrochemicals business. The petrochemical is believed to be at the bottom of the cycle currently. The petrochemical business is expected to see a cyclical upturn this year.
At Rs 1075.05, the stock trades at 14.3 times its estimated earnings for 2011. Morgan Stanley analysts have an overweight rating on the stock with a target price of Rs 1322 per share in the next 12-18 months. Investors could consider the stock on declines. On the flip side, the litigation regarding pricing of gas to be sold to RNRL remains an overhang on RIL’s stock.
