Reliance Industries Ltd. (RIL) is planning to merge its loss-making U.S. shale operations and Indian exploration and production (E&P) business to achieve synergies. The move comes at a time when the company is shifting focus towards profitable and scalable consumer businesses.
Confirming the development, V. Srikanth, joint CFO, RIL, said, “We have submitted an application to RBI for cross-border merger to achieve synergies through integration of resources with Indian E&P business. RIL board will consider the proposal for amalgamation upon receipt of approval of RBI.”
RIL’s revenues from domestic E&P operations stood at ₹754 crore, with a negative EBIT of ₹245 crore for the June quarter. Revenues from U.S. shale gas operations stood at ₹678 crore with a negative EBIT of ₹199 crore for the June quarter.
However, Paras Bothra, head of equity research at Ashika Stock Broking, said, “Merging of U.S. shale gas subsidiary with the parent is going to have an insignificant impact.” “Moreover, RIL doesn’t seem to have any great interest on shale gas and the real focus is on telecom, retail, and its existing refining/petro chem business, which investors are keenly watching and are the real big value drivers for RIL shareholders,” he added.
Oil and gas
Oil and gas contributed to revenues of ₹5,204 crore and loss of ₹1,536 crore for FY18. At peak, oil and gas contributed to revenues of ₹12,649 crore, accounting for 5.5% of total revenues and EBIT of ₹5,413 crore.
Oil and gas was expected to be a significant contributor to RIL’s earnings and cash flows, but falling gas production in KG Basin and declining shale gas prices in U.S. made the segment the least contributor to RIL’s top line and bottom line, whileconsumer businesses now contribute to 21% of the company’s EBITDA.
RIL shares declined 1.91% on the BSE to close at ₹1,168.35 in a weak Mumbai market on Thursday.