| Event - Reuters reported that according to an unidentified company source, RIL aims to begin oil production in July - August 2008 from MA-1 well in its KGD6 block. The source added that their internal target was June, but it more likely in July-August as RIL is yet to get a FPSO platform from Aker.
Impact - This is significantly ahead of the RIL's official production target of 2HFY09. The company aims to produce 20,000 bpd initially and ramp-up to 40,000 bpd next year in addition to 8 mmscmd of rich gas from 2 wells.The valuation implication is unlikely to significant. We estimate a Rs 3/share NPV upside. The sentiment kicker is likely to be significant, though.
- This is in line with the 13 May 09 statement by 10% partner Niko Resources' (NKO CN, Not rated) Chairman and CEO. He has also stated that RIL's larger gas production start-up is scheduled for August 2008, once again ahead of RIL's official statement of 2HFY09.
- We estimate gas production shall have a mildly larger Rs 6/share NPV upside, but the sentiment kicker is likely to be larger given the High Court stay order on gas offtake. Given the massive savings to the nation, we believe that the government may force a quick resolution, perhaps as early as the next court hearing on 22 July 2008, if production starts early.
- We estimate that on reaching full production of 80mmscmd in 2-3 years, the net oil import substitution could be as much as US$ 23bn pa at US$ 130/bbl of oil. This compares with an FY09E estimated oil subsidy of ~US$ 53bn and import bill of ~US$ 100bn.
- Last week RIL entered into an MoU with 9 existing fertiliser and power companies to offtake 30 mmscmd of gas as soon as the court order is lifted, averting any delays on this account.
Earnings revision Price catalyst - 12-month price target: Rs3,155.00 based on a Sum of Parts methodology.
- Catalyst: New oil and gas finds and enhanced clarity on organised retail.
Action and recommendation - RIL is our top sector pick. We forecast a tripling in profits over five years, purely from volume growth despite an assumed cyclical downturn.
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