SP Tulsian’s views on BoR-ICICI Bk merger, RIL-RNRL talks
The Bank of Rajasthan board has given an in-principle nod for merger with ICICI Bank. The promoters of Bank of Rajasthan (BoR) have agreed to merge with ICICI Bank. Both have agreed to a share swap of 1:4.72. In terms of quantity, every 118 shares of BoR will get 25 shares of ICICI Bank.
Commenting on the same, SP Tulsian, sptulsian.com, says Bank of Rajasthan will head towards Rs 165-170. He further says, the move made by ICICI Bank is positive. However, he is concerned over the regulatory issues.
Speaking on the initial talks between Reliance Industries (RIL) - Reliance Natural Resources (RNRL), he says, initially RIL will be taking the definitive requirement from ADAG (Anil Dhirubhai Ambani Group) and then examine the same. “I think this process will take about two weeks time”
Below is a verbatim transcript of the interview.
Q: You probably won’t get a chance to buy Bank of Rajasthan (BoR) stock this morning, it might circuit up. How do you approach trading in this counter now?
A: I expect the stock to hit upper circuit and maybe it will go to somewhere between Rs 165-170 because we have got an indicative swap ratio of 25 to 118 and based on that I don’t think the share will really open. Yesterday, since it has hit the upper circuit of 20%, maybe two upper circuit of 20% and then we will be having 10% circuit, unless and until exchanges opt to reset the price band, which I think is unlikely. So we will be seeing the stock hitting upper circuit today and tomorrow.
Q: There were some rumblings yesterday of both the Reliance sides beginning some kind of conversation with early indications of what the ADAG (Anil Dhirubhai Ambani Group) wants. What did you make of it and what could it mean for Reliance Natural Resources (RNRL) stock?
A: I think this is the initiation of the process of the re-negotiations, which has been directed by the Supreme Court (SC) in its judgment and in pursuance, this is just the meetings of the officials or the key executives of both the companies. So maybe Reliance Industries will be taking the definitive requirement of RNRL or maybe of the ADAG Group with the expected power generation capacity they wish to because in most probability creation of 700 MW at one location at Dadri seems to be getting ruled out. So in that case, ADAG may break the generation capacity in two-three locations, maybe in the closer to the power generation point and there is talk that maybe it could be in the State of Andhra Pradesh.
So they will be taking the definitive requirement from ADAG group that, ‘what is your gas requirement, give us period wise’ and then maybe even the tenure because RNRL have asked gas from other sources as well and not merely confining to KG D6. So maybe they will be asking for a period of 17 years, which will all get collated, which will all examined by Reliance Industries Ltd and then those things will get forwarded to the government for the final approval.
I think this is a process which will take about two weeks time to obtain the requirement, to collate that and then a proposal maybe forwarded to the Government of India.
Q: Is there clarity on the BoR shareholding structure, there are varying reports of what exactly the Tayal group holds, how much is publicly held, do we know how much is up for offer here?
A: This is the biggest mystery in the whole deal. Here the dominant shareholders have entered into a deal with ICICI Bank, which is the Tayal Group. So we have to see what percentage of holding they will be showing to ICICI Bank because they say that officially they are holding close to 28% while Sebi, in their investigation, have found that they are holding close to 55% plus through the Benami Holdings also. So, one has to see the shareholding agreement finally concluded by the Tayal family with ICICI Bank.
There is talk that probably it will only be for 28% and maybe the remaining 27% will get offloaded by the Tayal family in due course of time before the completion or implementation of the merger formality happens. If it happens at about 28%, then in fact it is a serious case of corporate governance that where SEBI (Securities and Exchange Board of India) has established that there has been existing Benami holding and in spite of that such a big bank with market cap of Rs 3,000 crore have been taken over without having examined anything in respect to the shareholding pattern. SEBI also will be looking while giving the consent for this merger on this issue because they have already been investigating this matter. So this is serious matter, and it should not act as precedent for other companies that anything can just go scot-free.
Q: How would you approach Mandhana, the stock which lists this morning?
A: The company had forex losses of about Rs 18 crore in FY10 and that will bring down their EPS (earning per share) considerably. But if you take a call for FY11, I think they should be able to have a topline of close to about Rs 675-680 crore. On the expanded equity of about Rs 34 crore, they should be able to post an EPS of Rs 20, that seems to be on the practical side.
If I go by the present PE Multiple, maybe of about 6.5 to 7 times because traditionally these textile stocks have been ruling at those kind of multiples only and since this is a new entrant, so if I apply at 7 PE multiple it translates into a value of about Rs 140 and if I give a multiple of 6.5 it works out at Rs 130. So Rs 130-140 seems to be the price at which it should list and it should rule and since company has issued share at Rs 130, if we take average of that, maybe a nominal premium of Rs 2-4.
Q: Is the worst over for sugar or would you use bounces to still exit?
A: No, I don’t think that worst is over because this season’ 10-11 will really be the deciding factor where we need to see in case of the production, which is likely to be at least about 25 million tonne, which can go as high as 28 million tonne. I am counting that to be 25 million tonne and what sugarcane price needs to be paid because we have seen SAP of Rs 165 for UP while it was paid to the extent of Rs 260. So unless and until mills are required to pay only upto Rs 160 or 170, the viability remains for these companies and in fact the UP based sugar mills are more in a vulnerable situation. So I won’t be using any dips as a buying opportunity.
Q: It is almost down about 4% for ICICI Bank, is it the costs of the buy or the regulatory issues that are looking like an over hang on the stock today?
A: I don’t think this is the cost because all analysts have discussed that this is looking quite reasonable cost or price tag, which ICICI Bank will be paying for acquiring this bank. Honestly, I am more concerned for the regulatory issues.
Firstly, I am surprised to see ICICI Bank correcting because in my view this is definitely a positive move. If they can ram up their present branch capacity by 25% with a dilution of just 3%, at least share should not have corrected. I was expecting maybe a mild positive, but maybe the regulatory overhang is taking a hit on the stock price. I am not prepared to accept the fall, which we have been seeing, in ICICI Bank. Even if you see the regulatory issues, probably the deal may get off, but again the possibility of that is hardly 5%. So if you examine from any angle, I am unable to accept the price behaviour of ICICI Bank.
Source : Money Control
Popularity: 6% [?]
Category: Stock-News
Subscribe
If you enjoyed this article, subscribe to receive more just like it.
