RNRL, RPower merger a necessity: Analysts
Anil Ambani group’s RNRL saw its stock price crash 27 per cent Monday, on expected lines. Meanwhile, Reliance Power, the company into which it is being merged, saw stock price go up 3.6 per cent on the Bombay Stock Exchange.
Markets are terming the merger of RNRL into R-Power as a merger of necessity, which doesn’t really add much value for shareholders in the long run.
The management of Reliance Power had organised an early morning conference call on Monday, before the markets opened, to present its rationale for the merger.
One reason cited was to have certainty that the government will allocate gas to R-Power, according to an analyst who attended the conference call.
The current policy may not allocate gas for a company that doesn’t have power plants — in this case, RNRL. However, since the gas supply agreement is between RNRL and RIL, a merger was needed.
The management has also spoken of synergy benefits of the logistics business of RNRL, which supplies coal to Reliance Infra’s power plants and R-Power.
RNRL shareholders will benefit by being able to participate in the future prospects of RPower’s 37,000 mw power generation portfolion, according to the management.
The market’s however seem to think different. The RNRL-RPower merger looks like a defensive move, says Macquarie, a brokerage house.
“In our view, the absence of any gas assets in RNRL meant that this transaction was done as a necessary step to ensure gas allocation, rather than for value creation,” the brokerage says in its report.
The value add for Reliance Power from the deal would be the marketing margins of $ 0.10/unit of gas that would be saved, says Emkay, another broking house.
This would add Rs 3-4/share to the earnings of Reliance Power. However, post the merger, Reliance Power’s share becomes even more expensive. It is currently trading at a price/book value ratio of 2.7, which rises to 3, according to the brokerage. Therefore, the merger isn’t very positive for RPower either.
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