The final Comptroller and Auditor General report on performance audit of hydrocarbon PSCs tabled in the Parliament on Thursday may not have any impact on the stock of Reliance Industries.
On the other hand, according to analysts, it should be viewed as positive for Reliance, as it had eliminated some of the lingering doubts about the company.
According to Citii report, “in our view, it has noticeably toned down its admonishing language in the final version tabled in Parliament yesterday. “While the Govt's next steps in this regard (it has assured the CAG that actions on its recommendations would be taken as deemed appropriate) remain difficult to predict, a continuation of its recent supportive stance could be reasonably expected, in our view, which would be a positive.”
A Kotak report said: “RIL's stock price largely factors in concerns pertaining to the E&P segment and we retain our positive stance despite the 13 per cent run-up in the stock price in the past 10 days.”
The CAG audit has also raised concerns on the award of 10 large procurement contracts in FY 2007-08 on single financial bids including eight contracts awarded to Aker Group by RIL.
“However, the auditor could not establish the reasonableness of: 1) costs incurred; and 2) major revisions in scope, quantities, and specifications, which may have adverse implications for cost recovery and government's share of profit petroleum,” Kotak analysts said.
Goldman Sachs feels that the near-term overhang for the stock has gone and now the focus is shifted to its fundamental.
“Going forward, we believe RIL's stock performance should return to fundamentals with a focus on refining/chemical cycles, D-6 ramp-up, new drivers for growth, and incremental returns from deploying surplus cash.”
PAC to scrutinise
JP Morgan analysts Mr Pradeep Mirchandani and Mr Neil Gupte said, the CAG report will now be scrutinised by the Public Accounts Committee (PAC) and probably referred to for action to a standing committee. We feel the focus will be on changes to Government policy/ procedure with little retrospective action on existing operators.
“The response notes that this issue was specifically discussed between the Operator/DGH/ PetMin and the Government had accepted the entire D-6 block as a discovery area based on seismic data as the hydro-carbon bearing channels and levels associated with the discoveries were present and extended throughout the block area.
“While this will remain an overhang, we would expect the Government to defend its decision,” they added.
“We see limited downside risk for the stock from current levels as the stock factors in the concern of delay in KG D-6 gas production ramp-up and weakness in refining and petrochemical margins given slowdown in global economy,” said IFCI Financial Securities.