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Saturday, May 8, 2010

RIL RNRL Case Verdict - Effects on Their Stocks

RIL RNRL case verdict is out. Individual investors in RIL, RNRL and RPL would be trying to figure out how the yesterday's Supreme Court verdict would affect their fortunes in these companies and their stock investments.

RIL investors are going to make more money. RIL is going to make additional profit of Rs. 22815 Crores with this verdict taking the total profit to Rs. 37755 Crores over the period of 17 years if the sell the gas at $4.2 per MMBTU to RNRL. RNRL investors have a thing to worry as verdict is certainly a setback for the company. RNRL stands to loose Rs. 3000 Crore mer month. Stock markets reacted to this badly and RNRL stock is hammered yesterday by almost 23%. Investors should wait for some more time (six weeks,to be precise) for clarity. For Reliance Power investors, there is no dramatic change in their company's prospects.

It is not that RNRL shareholders have lost everything. The court has mentioned that interests of shareholders of both RIL and RNRL should be balanced. Investors should wait for renegotiated deal. As such, RNRL business model is based on trading the natural resources. It was going to buy gas at $2.34 per MMBTU from RIL and sell it to Reliance power at $4.2 per MMBTU and thus make almost Rs. 3000 Crore per month in trade which now seems impossible. RNRL have recently won 3 blocks of oil and gas at auction, without these, RNRL would have been nothing with the latest verdict.

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