Reliance Industries, Tenacity Is Thy Name
You have to grant India’s most valuable company one thing: It sure has some grit.
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Reliance Industries’s Mukesh Ambani answers a question during the India Economic Summit in New Delhi last year.
Despite being slighted twice recently, Reliance Industries has soldiered on and inked a deal overseas. By acquiring a 40% stake in U.S.-based Atlas Energy’s acreage in the expansive Marcellus Shale natural-gas field for $1.7 billion, the energy conglomerate has managed to gain a foothold in one of the largest gas deposits in the U.S. [More on the story here.]
Reliance shares climbed 1.8% following the announcement Friday and earlier today were trading up 0.6% at 1,130.65 rupees while the benchmark Sensex was flat.
Still, its tenacity isn’t going to do much for profits right away, analysts say. The acquisition is too small to change the game for Reliance, which is run by India’s richest man, Mukesh Ambani.
In contrast, a deal Reliance wanted to do – and was willing to shell out $14.5 billion to seal – with Rotterdam-based petrochemicals maker LyondellBasell would have added significant value to its business. But Reliance was snubbed. It also recently lost out on a $2 billion bid for a stake in Canadian oil sands company Value Creation.
The Atlas venture may be most useful for the technology the company can apply elsewhere.
“Reliance will probably leverage on the Atlas joint venture to acquire the technical know-how, which could help them build a good shale gas portfolio in the foreseeable future,” said analyst Saeed Jaffery of Ambit Capital.
If Reliance wants a substantial fillip to its business and hence its stock, it needs to get back on the acquisition trail, especially once its Krishna Godavari basin, India’s richest gas find so far and one of the biggest growth drivers for Reliance right now, achieves its peak.
Reliance also is sitting on huge amounts of cash, raising concerns as to how it plans to use these funds. Jaffery estimates Reliance will generate nearly $16 billion in free cash over the next three years.
“Clearly Reliance will have to find more attractive opportunities to reinvest. The risk to RIL’s stock valuation today is that it is perceived to go ‘ex-growth,’” Credit Suisse said.
Source: WSJ.com: India Real Time
