Reliance Industries found favour on Wednesday as oil prices were beaten down on optimism that the war, if materiialises, will be brief and successful.
The scrip of the diversified company that needs oil to fuel its burgeoning petrochemiicals and refining businesses gained 1.3% to Rs 283.25 in just an hour's trading. The stock gained 1.6% to the day's high of Rs 284.30 earlier. Around 530,000 Reliance Industries shares were traded on BSE on Wednesday.
Wednesday 's recovery in RIL follows the slump in global crude oil prices Tuesday. World crude oil prices plunged 9.5% on Tuesday as the United States made final preparations for war on Iraq, easing market uncertainty over the conflict that had kept prices sizzling for weeks. Earlier, crude prices had surged about 20% due to war fears. Crude prices ruled steady on Wednesday.
Besides easing of uncertainty about the war, hope that the war will be successful and brief (not causing any collateral damage to oil fields) has prompted the oil price decline. On Monday, US president George W. Bush gave a 48-hour ultimatum to Iraqi President Saddam Hussein to leave Iraq or face invasion. Hussein responded with defiance, warning that Iraq's forces were prepared to confront the US and its allies.
RIL had come off their highs over the last few months every time the stock reached the Rs 300 or Rs 300 plus levels. This, as the stock was weighed down by concerns of a surge in crude prices. A surge in crude prices results in high naptha prices, a key raw material for petrochemicals and, therefore, RIL was being contained. The scrip had fallen from Rs 302.50 on 24 February 2003 to Rs 276.65 on 10 March 2003. The stock later moved in a band of Rs 276-288. Market men however caution that oil prices need to sustain the lows for economic and corporate resilience.
In March 2003, RIL effected a a sharp hike in product prices notwithstanding a cut in peak import duty in the Union Budget for 2003-2004. RIL sets product prices at the beginning of each month. For March 2003, prices of PSF were raised by 21.9% to Rs 71 per kg from Rs 58.25 per kg. The prices of PTA witnessed the steepest hike of 24% to Rs 46.50 per kg from Rs 37.50 per kg. PET prices were hiked by 15.4% to Rs 67.50 per kg, while MEG prices were raised by 18% to Rs 46.60. POY prices were increased by 9.3% to Rs 77.75 per kg.
Union Budget 2003-2004 has proved to be a mixed bag for RIL. On one front, 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. A marginally positive impact is also expected on other man-made fibres and yarns on account of the cut in excise duty to 12%. Decline in excise duties on manmade fibres and yarns is expected to result in higher growth in demand for 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%. 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 a fall in import duties due to the high degree of backward integration, economies of scale and higher productivity.
The decline in customs duties on paraxylene will positively impact non-integrated fibre intermediate producers, while impacting negatively net paraxylene sellers in the domestic market. The duty cut on paraxylene is expected to have a negative impact on RIL but positive impact on Bombay Dyeing. Basic customs duty on paraxylene has been reduced 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 abuzz 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 company IPCL, which has made RIL a near monopoly player in some of the petrochemical segments. It also recently acquired control over power utility firm BSES.
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.
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 operatorship 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: 500325
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