Reliance Industries Ltd (RIL) will receive benefits from an upward revision in natural gas prices from 2014, but the company is likely to have started seeing windfall gains from sharp depreciation of the rupee.

The Mukesh Ambani-led company earns 60 per cent of its overall revenue from exports, so any fall in the rupee value translates into higher realisation in rupee terms.

In 2012-13, RIL earned $44.1 billion in export revenue. Since March 31, the Indian rupee has slid 10.2 per cent against the US dollar. Consequently, RIL’s export realisation in rupee terms would have risen by a commensurate amount. At the current exchange rate of 59.8 a dollar, this would, theoretically, translate into an additional revenue of Rs 24,492 crore.

Two likely hiccups

However, two factors may reduce the net benefit to Reliance Industries from the rupee’s moves. One, with most of its Rs 68,000 crore of borrowings denominated in foreign currency, Reliance may have to shell out higher interest as well as principal repayments with depreciation in the Rupee. Given that the composition of debt is not known, it is unclear how much of the above realisations will be offset by this.

And two, the company does lock into specific exchange rates for its export revenues by way of hedging contracts. Based on what levels the company is locked into, its actual realisations may be lower than that estimated above.

With respect to RIL’s natural gas business, a price of $8.4 a million British thermal units from next fiscal, will lift the valuation by 10 per cent after adjusting for increased Government share, according to a JM Financial report. Its petrochemicals business is projected to similarly benefit.

Brokerages have revised Reliance Industries’ earnings estimates for 2013-14 upwards by 3-5 per cent on these developments.

arvind.jayaram@thehindu.co.in

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