Saturday March 2, 09:30 AM
Reliance: Creating a colossus |
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By Equitymaster.com
The first day of March in 2002 was in no terms ordinary. While a bandh had been called by a communal party in protest against communal uprising in Gujarat, investors -- maybe having the day off -- decided to shop on the bourses resulting in a hundred point rise on the BSE. But minisculing all that has been the amalgamation announcement from the Ambani group.
| (Rs m) |
3QFY01 |
3QFY02 |
Change |
9mFY01 |
9mFY02 |
Change |
| Net sales*** |
148,570 |
131,280 |
-11.6% |
407,090 |
418,940 |
2.9% |
| Other Income |
1,220 |
2,020 |
65.6% |
3,590 |
5,700 |
58.8% |
| Expenditure |
126,890 |
107,820 |
-15.0% |
346,560 |
359,530 |
3.7% |
| Operating Profit (EBDIT) |
21,680 |
23,460 |
8.2% |
60,530 |
59,410 |
-1.9% |
| Operating Profit Margin (%) |
14.6% |
17.9% |
|
14.9% |
14.2% |
|
| Interest |
5,650 |
4,640 |
-17.9% |
16,520 |
14,650 |
-11.3% |
| Depreciation |
5,660 |
6,420 |
13.4% |
16,100 |
18,670 |
16.0% |
| Profit before Tax |
11,590 |
14,420 |
24.4% |
31,500 |
31,790 |
0.9% |
| Extraordinary items |
- |
3,580 |
|
- |
4,180 |
|
| Tax |
670 |
530 |
-20.9% |
1,830 |
1,860 |
1.6% |
| Profit after Tax/(Loss) |
10,920 |
17,470 |
60.0% |
29,670 |
34,110 |
15.0% |
| Net profit margin (%) |
7.4% |
13.3% |
|
7.3% |
8.1% |
|
| No. of Shares** |
|
1673.47 |
|
|
1673.47 |
|
| Diluted Earnings per share* |
|
41.76 |
|
|
27.18 |
|
| * annualised ** assumed amalgamation ratio 1:8 ***Not considering inter-company sales |
As per the announcement, boards of the two Ambani flagship companies, Reliance (RELI.BO, news) Industries Ltd. (RIL) and Reliance Petroleum Ltd. (RPL) with meet on March 3, 2002 to consider the amalgamation of RPL with RIL. The amalgamation will be subject to approval from shareholders of the two companies and the Mumbai High Court. Speculation will be rife on the proposed amalgamation ratio. The scrip are likely to witness increased trading volumes in the fresh week ahead.
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|
RIL |
RPL |
| CMP |
Rs |
322.6 |
28.6 |
| Sales |
Rs m |
222,613.3 |
339,960.0 |
| EBITDA |
Rs m |
45,906.7 |
33,307.0 |
| PAT |
Rs m |
28,560.0 |
16,920.0 |
| OPM |
% |
20.6% |
9.8% |
| NPM |
% |
12.8% |
5.0% |
| EPS |
Rs |
27.1 |
3.3 |
| BVPS |
Rs |
140.1 |
16.7 |
| Shares o/s |
Nos |
1,053.8 |
5,202.0 |
| Mkt. Cap |
Rs m |
339,889.3 |
148,777.2 |
| EV |
Rs m |
440,240.9 |
223,272.0 |
| P/E |
x |
11.9 |
8.8 |
| CMP/BVPS |
x |
2.3 |
1.7 |
| EV/EBITDA |
x |
9.6 |
6.7 |
| RoNW |
% |
18.0% |
16.8% |
| RoA |
% |
8.9% |
7.4% |
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We undertook a small exercise to gauge what the megamoth will look like. The income statement does not consider inter-company sales. Therefore, actual reported sales for the new entity is likely to be lower. Sale of crude oil to RPL is estimated to have been Rs 3,964 m in FY01 representing 2% of RIL's gross sales. On the other hand, RPL, besides supplying fuel to RIL's power plants, also sells naphtha to the company for its core petrochemical business. The amalgamation could result in lower central and state indirect taxes. RPL is exempt from sales tax for 14 years. That said, operating profits are not likely to be affected. Therefore, aggregation at the bottomline is likely to be more accurate.
The swap ratio for the amalgamation is likely to be in the range of 8 - 11 shares of RPL for every 1 share of RIL. The final ratio will depend on whether the companies look at book value or market value of assets. In case the two companies choose to give higher weightage to market values, the ratio will move in favour of RIL and vice versa in case companies look at book values.
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