After merger, every 16 shares in RPL will convert to one in RIL

The Reliance Industries Ltd (RIL)-Reliance Petroleum Limited (RPL) merger is seen by Dalal Street as mostly win-win for all stakeholders.

Though both stocks ended the day down, experts see the deal as beneficial for the companies' shareholders in the near term.

Early on Monday, the RIL board approved a swap ratio of 16:1 for the merger. This means, after approval of the amalgamation by the court, every 16 shares in RPL will get converted into one RIL share.

"No action required. The RPL shareholder will automatically become an RIL shareholder. It's a win-win," said Raamdeo Agrawal, managing director, Motilal Oswal Securities. Analysts at his brokerage have put the target for RIL at Rs1,800.

RIL ended Monday's trading at Rs1,225.15 on the BSE, falling 3.15%. RPL closed at Rs75.15, losing 1.38%.

At Monday's close, 16 RPL shares would have been worth Rs1,202. Even after a steep fall on Monday, one Reliance share is still more valuable than 16 RPL shares, making sense for the RPL shareholder to hold on to his shares.

Experts feel Reliance Petroleum will also benefit from saving tax on the dividends it paid out to RIL as a 70% shareholder in RPL. In addition to the operational synergies, RIL can now gain access to the cash flows of RPL immediately, as opposed to at the end of the year when they were separate entities.

There are some concerns for RIL shareholders, though. PN Vijay, promoter of New Delhi-based PN Vijay Financial Services, says, "For RIL shareholders, it's a mixed bag. The positive is that 27 million metric tonnes of crude oil refining capacity is coming for a small capital increase. The negative is that RPL margins right now will be bad (given the depression in the crude refining business) and that will affect the overall earnings number of the merged entity."

RIL chairman Mukesh Ambani, however, dismissed these concerns, saying the merger will improve EPS for RIL shareholders, meaning it will add to the company's earnings per share.

Sachin P Mampatta/ DNA-Daily News & Analysis Source: 3D Syndication