No positive sentiments for IPCL shareholders: Tulsian

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No positive sentiments for IPCL shareholders: Tulsian

The planned merger of Reliance and IPCL is the big news of the day. SP Tulsian states that this is a belated move because there were talks of such a merger last year too. He says given the ratio of promotors' holding in RIL and IPCL, the merger may not be in favour of IPCL shareholders, CNBC-TV18 reports.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS RIL-IPCL combine to be among world's largest petrochem cos Indus Fila debuts with 6.53% discount Indus Fila should list at Rs 20-25 discount Indus Fila likely to list close to issue price of Rs 170 Indus Fila IPO subscribed 1.43 times ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets IPCL BSE | NSE 01/01/70 Are Mutual Funds betting on IPCL? Other Stocks in this news Reliance Industries |

The planned merger of Reliance and IPCL is the big news of the day. SP Tulsian states that this is a belated move because there were talks of such a merger last year too. He says given the ratio of promotors' holding in RIL and IPCL, the merger may not be in favour of IPCL shareholders, CNBC-TV18 reports.

 Excerpts from CNBC - TV18's exclusive interview with SP Tulsian:

Q: What do you estimate as the possible swap ratio and whom does it favour?

A: In case of IPCL , the promoter holding is about 47% and in Reliance Industries , the promoter holding is close to 51%, so obviously the merger ratio will not be in favour of IPCL shareholders.

Secondly, this has been a belated move on part of the management when last year also there was active talk of this. At that time, the merger ratio was contemplated at 3:1 - for every three IPCL shares, there would be one share of Reliance Industries. But now, in the present circumstances, if you see the equity profitability and the earnings, the swap ratio works out to two shares of Reliance Industries for every eleven shares of IPCL.

Q: Do you think the ratio will finally be very close to the current market price ratios or do you think there are other considerations like other valuation metrics, book value etc that might tip it a little bit more towards IPCL as a lot of people contend?

A: In the case of IPCL, they are only one up on Reliance Industries in terms of the dividend pay out because if you take parameters like equity turnover ratio, Reliance has nine times higher turnover, net profit is seven times higher than IPCL, while I suppose if we presume swap ratio of 5.5:1 obviously IPCL shareholder will stand to gain both in terms of topline and bottomline.

But yes, in terms of dividend payment because right now IPCL has paid last dividend as 55%, Reliance dividend was about 100%, if you just swap with 5.5:1 the dividend saving of about Rs 130 crore would be there alternatively, conversely dividend loss of about Rs 130 crore would be there to the IPCL shareholder. So except on the yield method basis on all parameters even 5.5:1 ratio is beneficial for IPCL shareholders.

Q: For the other matrix of this merged entity what happens both in terms of combined revenues and what happens to the margins now?

A: On the margin front I don't think there is much variation even for Reliance maybe because of the refinery they have little variation to the extent of 100 basis point on their EBITDA margin but except for that the profitability of both the companies are same. Coming on the turnover part post merger definitely Reliance will have a one lakh crore turnover on topline because about Rs 10,000-Rs 12,000 crore turnover would get added  from IPCL into the Reliance Industries' book.

Q: So which stocks should go up this morning IPCL or Reliance or both?

A: It depends. The tricky part is what they will do of the promoters holding - whether they extinguish the entire share or do not extinguish that, because I do not see any impact coming this morning because this news was expected. This has been going into the market for the last couple of days but the entire valuation would lie on the treatment given by the company for the promoters holding of 46%.

If they extinguish that holding definitely Reliance Industries would go up by about Rs 30-Rs 40 because that is the adjustment and if they park that amount into a separate trust or something like that obviously but otherwise in today's market I don't see any positive sentiments at least for the IPCL shareholders which is in fact talked about 

Q: Indus Fila lists today, yesterday the listings were not great, do you expect a good listing from Indus Fila or a weak one?

A: I don't think because when the company went public at that time also it was the consensus that the issue has been aggressively priced and it has evoked very poor response, infact at the offer price also I find that probably the share will list with a discount of atleast Rs 20-25 anywhere between Rs 130-Rs 150.

Q: Anything currently open that you think warrants interest on these IPOs because they have been struggling to even get one time over subscription?

A: I don't find any interesting IPO right now, which are either likely to approach the capital market in the next one week-10 days or those which are open right now.