A sharp decline in the Reliance Industries (RIL) stock since the start of the month appears to have prompted the company to buy back more of its shares.
According to data available with domestic exchanges, while the stock has lost more than 6% between April 30 and May 11, RIL has bought back 51.4 lakh shares at an average price of R717.20 from the open market. In other words, RIL has spent R369 crore, which constitutes almost 40% of the cumulative buyback of Rs Rcrore (1.23 crore shares) since February 14, 2012, when it started the buyback.
On Monday, following a credit downgrade by Moody?s, the stock fell to a new 52-week low before ending the session down 2.3% at R681.3, its lowest level in more than three years. The rating agency revised RIL?s credit rating to ‘negative’ as it expects RIL?s lower expectation of crude reserves to lead to declining output and lower cash flows.
Last week, in its annual report for 2011-12, RIL cut its estimates for proven gas reserves from KG-D6 block ? India?s largest natural gas field ? by 7% to 3.67 cubic feet due to technical difficulties. The oil ministry has projected the gas output from RIL?s D6 block to decline to 20 million standard cubic metres a day (mscmd) in 2014-15 from an estimated 28 mscmd this fiscal.
RIL has been under pressure from the government and regulators to raise output. Earlier this month, it said the government plans to disallow the recovery of some exploration costs at KG-D6. In November 2011, Reliance sought arbitration in anticipation of the restrictions.
According to JPMorgan, the ministry of petroleum?s disallowance of $1.5 billion in cost recovery makes it less likely that RIL will make investments until clarity is available on both gas pricing and cost recovery. ?Current developed gas reserves are 3.5 years of production, yielding downside risk to current xpectations for production,? the broker said in a note.
Meanwhile, analysts are increasingly turning unenthusiastic on the stock. According to a Bloomberg compilation of analyst ratings, 45% of the 51 analysts either have a ‘hold’ or a ‘sell’ rating on the stock. RIL has lost nearly 14% of its value since January 20, 2012, when it reported disappointing December quarter numbers. At that time, RIL said it plans to spend up to R10,440 crore to buy back up to 12 crore shares, from the open market, at a maximum price of R870 per share. While the buyback announcement gave the counter a temporary breather, it has been on a losing streak since February 14, the day RIL initiated the buyback exercise.
