Reliance Industries surged on Monday after turning volatile trade last Friday, following the cut in peak import duties in the Union Budget for 2003-04.
The stock of the diversified major was up 2.1% at Rs 300.15 on the BSE in early-afternoon trades. Earlier, it hit a high of Rs 301.20. A higher volume of 2.05 million shares was recorded on the counter.
Last Friday, the Reliance Industries scrip was volatile after rallying earlier during the session, and finally ending in the red. It shed 0.5% to settle at Rs 293.95 on that day with a higher volume of 4.21 million shares.
The RIL scrip has staged a rally in the last few sessions amid volatility. From a recent low of Rs 268.05 on 30 January 2003, the scrip has gained 11.9% to the current Rs 300.15. Analysts said there was hectic activity in the stock. Funds are said to have mopped up the stock recently.
Monday's gains on the RIL counter stem from a sharp hike in product prices by the company for the current month, notwithstanding a cut in peak import duty in the Union Budget for 2003-2004. RIL sets product prices at the start of every month. For March 2003, the prices of PSF have been raised by 21.9% to 71 per kg from Rs 58.25 per kg. The prices of PTA have witnessed a steepest hike of 24% to Rs 46.50 per kg from Rs 37.50 per kg in February 2003.
PET prices have been hiked by 15.4% to Rs 67.50 per kg, while MEG prices have been raised by 18% to Rs 46.60. The price of POY has been increased by 9.3% to Rs 77.75 per kg.
The Budget has proved to be a mixed bag for RIL. On the flip side, there is a cut in excise duty on PFY from 32% to 24%. This has been done through reduction of special excise duty on PFY from 16% to 8%.
The reduction in excise duty from 32% to 25% will have a significant positive impact on POY. Marginally positive impact is also expected on other man-made fibres and yarns on account of the cut in the excise duty to 12%. Decline in excise duties on manmade fibres and yarns is expected to result in higher growth in demand for the fibres, leading to increased demand not only for fibres but also their raw materials, namely, fibre intermediates.
There was a reduction in peak customs duty by 5 %, to 25%. However, this was offset to some extent by reduction in Cenvat to 2%. The integrated producers like RIL and IPCL (now part of RIL group) have consistently shown that they have been able to protect margins in spite of fall in import duties due to the high degree of backward integration, economies of scale and higher productivity.
Decline in customs duties on paraxylene would positively impact the non-integrated fibre intermediate producers, while impacting negatively the net paraxylene sellers in the domestic market. The duty cut on paraxylene is expected to have negative impact on RIL but positive impact on Bombay Dyeing. Reduction of the basic customs duty on paraxylene is from 10% to 5 %.
Following the merger of Reliance Petroleum with RIL, the petroleum segment has become a major contributor to operations and revenues of the latter .
RIL is also making aggressive moves in the telecom business. The market has been agog with rumours that RIL's 45% subsidiary Reliance Infocomm has garnered huge response from customers (1 million) for its wireless-in-local loop mobile services. Reliance Infocomm is expected to roll out basic telephony services in 17 states soon. It has already laid 40,000 km of optic fibre across the country to cover various facets of telecom services including basic, Internet and long distance telephony. The company is expected to provide cheaper services. It is banking on a lower margin-high volume game. RIL has reportedly invested a huge sum in Reliance Infocomm - of over Rs 25,000 crore (Rs 250 billion).
RIL has acquired control over two companies in the last few months. It acquired government stake in petrochemicals firm IPCL, which makes RIL a near monopoly player in some of the petrochemical segments. It also recently acquired control over power utility firm BSES.
Last month, RIL registered impressive results for the third quarter ended 31 December 2002. It posted a 24% rise in net profit to Rs 1,083 crore (Rs 10.83 billion), compared to Rs 873 crore (Rs 8.73 billion) in the corresponding period of the previous year. Total income increased by 7.58% to Rs 11,243 crore (Rs 112.43 billion) from Rs 10,450 crore (Rs 104.5 billion) in DQ 2001. The figures for the corresponding previous period have been restated to include the effect of the amalgamation of Reliance Petroleum with RIL with effect from 1 April 2001.
In October 2002, RIL had said that its Krishna-Godavari basin (Andhra Pradesh) gas project would go on stream around mid-2004. The cost of development of the project may total $1.3 billion, it added. RIL is also expected to bid for government stake in state-run oil refiner HPCL.
ONGC and RIL have finally resolved the operator-ship issue of Western Offshore's Panna-Mukta and Tapti oil and Gas fields with British Gas. ONGC holds 40% of the equity in the joint venture, whereas RIL and BG have 30% each. The three companies have agreed to a joint operator-ship wherein the unincorporated JV will work through an operator board and have one senior representative from each company.
The operator board of the JV will be responsible for the overall supervision and control of petroleum operations including the policies, work programmes and budgets etc. ONGC will take the lead responsibility for contracts, procurements and projects, RIL (financial and commercial aspects) and BG (technical and operational activities). However, the operator board can allocate some of its responsibilities to any one of the partners with the objective of ensuring smooth and efficient operations.
BSE code: 500111