Reliance Industries Limited (RELIANCE) has made another discovery of gas in the Krishna Basin.

The commercials of this find are not known. For what it’s worth, the gas finds need to translate to income and only then will we know the extent of the profitability of these finds. Right now gas prices are high, but with a worldwide recession, will they come down to levels where it’s not profitable to get them out of the ground?

But RIL has other positives. The average price of crude has been above $90 in Q4 08, and that will contribute to their results - in Q3 they made about $15 per barrel as gross refining margin. Q4 should be a good 10-15% higher. That is likely to take their EPS to around 105-110 for the year. If they reconsider doing their forex transactions to reflect AS 11, they are likely to record another 500 cr. in profit, another Rs. 3.5 in EPS.

At current prices of 2350, RIL has about 21 P/E. They’re growing at more than 25% on EPS levels and that is likely to stay or increase as RPL kicks in, as the gas finds get commercialised, and as the retail bits of the business expand. Let’s wait for the results before we make a buy or sell decision, though.

Disclosure: Long RIL.