X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Reliance: Giving it's all - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 20, 2002

    Reliance: Giving it's all

    Saturday's announcement by the Cabinet Committee on Disinvestments (CCD) must have yielded a sigh of relief from several participants. Privatisation of Indian Petrochemicals Corporation Ltd. (IPCL) had been hanging over the past three years with stock price plummeting after the first attempt fell through leading to many burning their fingers.

    Reliance group, now represented by Reliance Petroinvestments, which was leading the pack in the 1999, has emerged as the winning bidder for IPCL. It seems, the media, as maybe the group, is relieved to have ended the losing streak on the divestment field. The group, as like others, were completely out bid by Indian Oil Corporation (IOC) for acquiring petroleum marketer, Indo-Burmah Petroleum (IBP) and narrowly missed the finishing line for international long distance service provider, Videsh Sanchar Nigam Ltd. (VSNL). However, all is now passe'.

    Winner's Curse?
    No. of shares nos m 249
    Stake acquired by RIL   26.0%
    Acquisition price Rs m 14,910
    Shares acquired nos m 65
    Acquisition price/share Rs 230
    CMP Rs 134
    NAV/share Rs 150
    Second highest bid** Rs 128
    Premium to CMP   71.8%
    Premium to NAV   54.0%
    Premium to second highest bid   79.9%
    Cost of open offer Rs m 11,506
    Reliance group bid Rs 14.9 bn for the Government's 26% stake, which works out to a per share price of Rs 230. Comparatively, IOC and Nirma, the second highest and lowest bidder, put in a per share bid of Rs 128 and Rs 110 respectively. Prior to divestment, the media carried several stories on aggressive bidding for IPCL. Reportedly, IOC was expected to have been leading the race at some point. However, numbers suggest otherwise. The media has a lot to thank Reliance, as had they not bid as aggressively, the media would likely have been made to eat back their words.

    Having said that, the aggressive bid by Reliance is likely to have been triggered by the two losses. The IOC bid for IBP could have been playing on its mind. Participation of public sector units (PSUs) in the disinvestment programme has upped the ante for acquiring Government assets. Consequently, the programme is yielding attractive collections. One cannot help thinking that the strategy of PSUs bidding aggressively, at start, is likely to have been for establishing a trend.

    Shareholding pattern
    Shares Outstanding* 249.1
    Government holding 84.7
    Reliance group 64.8
    Free float (40%) 99.6
    Maximum open offer (@20%) 49.8
    * shares in m  
    Arbitrage Opportunity?
      IPCL
    buy back % of free float* 50.0%
    Open offer price 231.0
    CMP** 134.0
    Premium to CMP 72.4%
    Realisation from open offer 115.5
    Break-even price (BEP) 37.0
    FY03E EPS 5.8
    P/E Ratio on BEP 6.4
    *Assuming all non-strategic shareholders tender in their shares
    **Current market price

    Reliance Industries Ltd. is the largest petrochemical producer in the country with not many players in the field. The IPCL acquisition is going to increase the dominance of Reliance group in the petrochemical business. The acquisition is likely to yield benefits of scale - leading to global competitiveness. Synergy - IPCL has both naphta and gas crackers, the feedstock will be sourced from the group, as Reliance produces naphtha at the Jamnagar refinery and is involved in oil & gas exploration and production. This is likely to yield integration benefits. Also, the group will be better positioned for sourcing other raw material inputs. Having said that, the higher bid could be supported by monopoly pricing in the domestic market. The Government, especially the Monopolies and Restrictive Trade Practices (MRTPA) wing, will have to be vigilant to ensure the group does not take undue advantage of its position. A weapon in hands of the Government is import duties, which currently are at 30% and 20% for polymers and polyesters and their intermediates.

    The group has no doubt paid a premium for acquiring the Government's 26% stake. We estimate the group to have free cash flows of Rs 47.5 bn in 2002. On enterprise value based on EBITDA (EV/EBITDA of 6.5x), the fair price is an estimated Rs 115. Comparative valuations and other financials of the deal have been provided. Reliance Petroinvestments will have to make an open offer for an additional minimum 20% stake. With the high premium offered, we believe all non-strategic shareholders are likely to exercise their option.

    IPCL stock was trading at Rs 134 at close on Friday. Based on FY03 earnings, we believe the post buyback price is likely to be Rs 60 based on RIL valuations. Consequently, the stock could be higher by 9% in today's trading at Rs 146, which we believe is the break-even price for the arbitrage in IPCL.

    IPCL: Current Status
    CMP Rs 134
    No. of shares nos 249
    Net sales* Rs m 44,946
    EBITDA* Rs m 7,907
    PAT* Rs m 744
    OPM % 17.6%
    NPM % 1.7%
    EPS Rs 3.0
    BVPS Rs 126
    Mkt cap Rs m 33,373
    Enterprise value Rs m 54,663
    P/E x 44.9
    Price/book value x 1.1
    Mkt cap / sales x 0.7
    EV / EBITDA x 6.9
    * annualised figs.    
    Sum of part valuation*
        IPCL
    Naphtha cracker (Baroda) MT 130,000
    Replacement cost / MT Rs 21,825
    Value of naphta cracker Rs m 2,837
    Gas cracker (Gandhar + Nagothane) MT 700,000
    Replacement cost / MT Rs 32,010
    Value of gas cracker Rs m 22,407
    Downstream capacity MT 1,202,900
    Replacement cost / MT Rs 38,800
    Value of downstream plants Rs m 46,673
    Replacement cost of assets   71,917
         
    Add    
    Investments** Rs m 1,294
         
    Total asset value Rs m 73,211
    Less    
    Debt Rs m 35,475
         
    Net asset value Rs m 37,736
    No. of shares m 249
    NAV / per share Rs 152
    * All figs. are estimates    
    ** Gujarat Chemical Port Terminal Co. Ltd.
    & JV with GE Plastics
       

     

     

    Equitymaster requests your view! Post a comment on "Reliance: Giving it's all ". Click here!

      
     

    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    RELIANCE IND. SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK RELIANCE IND.

    • Track your investment in RELIANCE IND. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    RELIANCE IND. 5-YR ANALYSIS

    Detailed Financial Information With Charts

    COMPARE RELIANCE IND. WITH

    MARKET STATS