RIL shares jump 4% on government's plan to double gas prices - Economic Times

Prices | Financials | Company Info | Reports MUMBAI: Shares of oil and gas companies surged on Friday after the government approved doubling of domestic gas prices from April next, signalling its resolve to fire up the energy sector and make it more attractive for investment. Reliance Industries, which operates the country's biggest gas field in the Krishna-Godavari basin on the east coast, jumped 3.78% to close at Rs 861. The stock has rallied nearly 9% in last three trading sessions, prompting leading brokerage houses to turn bullish on the company's earnings prospect. "The gas price hike is significantly higher than $6.76/mmbtu proposed by the oil ministry. It's a progressive reform towards boosting domestic gas production, and attracting large scale investment in the sector," said Ashish Jagnani, analyst with UBS, in a research note. Brokerage houses expect Mukesh Ambani-led Reliance Industries' earnings per share (EPS) to rise by 7-8% in FY15, as every $1/mmbtu increase is likely to boost the company's EPS by 2%. "Assuming gas price at $8.4/mmbtu and the rupee at 58 to the dollar, we forecast 20% upside in earnings estimate for FY15. However, the incremental EPS contribution from gas prices is only seen higher from FY17 and beyond, when gas production is expected to increase," said Vinay Jaising, analyst with Morgan Stanley, in a research note. The visibility on gas pricing is likely to accelerate investment in the oil and gas sector. The higher gas pricing is also going to help in making deep water exploration and development commercially viable. Earlier, RIL's discoveries in KG basin became commercially unviable at $4.2/mmbtu. "The gas price hike has made RIL's oil and gas fields such as D6 and NEC 25 commercially viable. We expect a spurt in exploratory and development activity by the RIL-BP joint venture in its KG basin blocks. Any incremental announcement in gas exploration and production should boost valuation expectations of the company," said Rohit Ahuja, analyst at ICICI Securities, in a research note. In the past, Reliance's plans for oil and gas field development in the KG basin were stalled due to delays in government approvals, but now the price increase may make the project viable. Copyright © 2013 Times Internet Limited. All rights reserved. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNFZdiLTKHq5zexDHdDjhAC020iQMA&url=http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/ril-shares-jump-4-on-governments-plan-to-double-gas-prices/articleshow/20825635.cms

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