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Reliance Natural Resources Ltd (RNRL) lost more than a fourth of its market capitalisation in just two days of trading after the Reliance Anil Dhirubhai Ambani Group (R-ADAG) announced its merger with sister firm Reliance Power (R-Power).
RNRL shed 28.2 per cent, or Rs 2,931 crore, of its value since Sunday, when the board of directors of the two firms said RNRL shareholders would receive one R-Power share for every four they hold.
The RNRL stock, which had plunged 27.26 per cent yesterday, lost another 1.3 per cent on Tuesday to close at Rs 45.70 on the Bombay Stock Exchange. The exchange's benchmark index, Sensex, ended the day with a gain of 173 points, or 1 per cent.
Analysts said the crash represented the disappointment of shareholders over the share swap ratio.
The gloom extended to the R-Power counter, too. The stock, which had climbed 3.57 per cent yesterday to touch a 52-week intra-day high of Rs 189.80, lost 1.6 per cent in Tuesday's trade to close at Rs 178.50. This followed analysts' comments that it would take at least three years for the company to reap any big benefits of the merger.
RNRL has been valued at Rs 7,120 crore against its net worth of Rs 1,900 crore. Although the merger improves R-Power's chances of securing gas, it has paid too much for it, a Credit Suisse report said.
R-Power had on Sunday said the merger would help the company accelerate its plans to set up 8,000 mega watts (Mw) of gas-based power stations, as RNRL had signed a Gas Supply Master Agreement (GSMA) with Mukesh Ambani's Reliance Industries Ltd (RIL) last week.
RNRL has been valued at 5.8 times its book value and R-Power will not have any immediate monetary gains from the merger, according to Batlivala and Karani, which offers investment and financial advisory services.
The firm said it expects R-Power to set up gas-based power plants not before 2013-14.
Macquarie Equities Research said the merger was done more out of necessity than value creation and was a step to ensure gas allocation for R-ADAG.
RNRL does not have any gas project under implementation. The Supreme Court decision in the RIL-RNRL dispute case highlighted that the government has ultimate control of gas supplies in India. RNRL itself has no power project of its own. It is essentially trading the gas against the government's desire to allocate gas to end users and not traders, noted the analyst firm.
R-Power, which has access to about 4 billion tonnes of coal reserves in India and Indonesia, will be benefitted by the addition of new coal blocks from RNRL, the company had said.
Analysts noted that RNRL and R-Power are yet to start mining in these coal blocks. Further, R-Power will require large amounts of coal only when its Krishnapatnam ultra mega power project (UMPP) goes on track, which is at least 4-5 years away. R-Power has acquired three coal mines in Indonesia, but will have to set up coal handling facilities, ports, roads and other infrastructure before it can start mining.
R-Power currently has about 1,000 Mw of generation capacity, a majority of the assets transferred recently from group company Reliance Infrastructure. It has secured coal supplies for the existing generation capacity.
RNRL has 45 per cent interest in four coal-methane blocks, spread over 3,251 sq km and estimated resources of 193 billion cubic metres, and a 10 per cent share in an oil and gas block in Mizoram, with an acreage of 3,619 sq km and reserve potential of up to 28 billion cubic metres. RNRL is yet to generate any revenue from these assets, they said.
Analysts said R-Power's claims on advantages from coal shipping logistics after the merger was also a distant reality as RNRL's shipping plans are still at the blueprint stage. The company is yet to place any orders for ships or float any shipping subsidiary. As against this, Tata Power, which is also setting up a UMPP at Mundra in Gujarat, has already floated a shipping company and has tied up for ships, they added.
