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May 21, 2002 | 1215 IST
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RIL bid not overpriced: Analysts

Gaurav Raghuvanshi

Reliance Industries Ltd's bid of Rs 231 a share for Indian Petrochemicals Corporation Ltd was Rs 100 more than the government's reserve price and 80 per cent above its next competitor Indian Oil Corporation's quote of Rs 128, but analysts say the country's largest corporate house has paid the right price for the petrochemical PSU.

"The Reliance bid was in line with economic fundamentals. Though the bid is slightly higher than expected, we believe that the difference is not significant in the context of the medium-to-long terms benefits that we believe will accrue to Reliance," according to a JP Morgan analysis.

The acquisition would be a key near-term share price driver for the Reliance stock. Reliance would now effectively control nearly two-thirds of the Indian market for petrochemicals and was expected to benefit from the upturn in the petrochemicals cycle that is predicted to begin by the middle of next year, the analysis says.

The RIL stock was, however, down by Rs 4.5 at Rs 275 at the close of the day's trading at the Bombay Stock Exchange.

On the Indian Oil and Nirma bids, it says, "The bids reflect the fact that these companies would not have been able to achieve synergistic benefits which RIL, a company with core competencies in petrochemicals, will be able to reap."

A similar analysis by Enam Securities says that based on asset valuation, the Reliance bid was 15 per cent above the replacement cost estimates.

The payback of a petrochemical plant could vary anywhere between 3 years and 10 years depending on the plot on the cycle at the time of entry. If the entry timing was right, even a premium acquisition could be highly profitable, it says.

The Reliance bid reflects the company's high level of confidence in the sustainability of the recent cyclical upturn in petrochemicals, it says.

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