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Reliance-IPCL merger in pipeline

Mumbai, March 7: Indian Petrochemicals Corporation Ltd (IPCL) is finally being amalgamated with Reliance Industries Ltd (RIL).

The merger will create a Rs 45,000-crore petrochemical and polymer powerhouse.

RIL today informed the stock exchanges that its board would consider the amalgamation of IPCL with itself on March 10.

There’s been a buzz of speculation ever since 2005 that IPCL would merge with Reliance and it’s only now that it is finally going through.

Reliance had acquired IPCL in 2002 by buying the 26 per cent government equity for Rs 1491 crore. It subsequently came out with an open offer to purchase an additional 20 per cent.

In June 2005, the three-year agreement of IPCL with the government expired and ever since talk of a merger has hung in the air.

Both Reliance and IPCL have similar products like polypropylene and polyethylene among others; the amalgamation is expected to lead to cost savings and create synergies. Sources said as capacities will be consolidated in a single company, the merged entity will have greater say on both raw material purchases and finished goods sales. The merged entity will also have a better presence in the country’s polyester space.

While IPCL manufactures polyesters like polyester yarn and polyester fibre, RIL is the world's largest producer of these commodities with a combined capacity of 2 million tonnes.

Reliance has a domestic market share of 56 per cent in polyester yarn and polyester fibre and it produced more than 11 lakh tonnes of polyester during the first nine months of this year, which was at least three times more than IPCL’s production of these items during the period.

“The feedstock or the raw materials that they use in the polymer space are similar. This can lead to some savings. Moreover, there is the benefit of selling the products together instead of doing it separately,” Niraj Mansingka, analyst at Edelweiss Securities said. Sources added that IPCL was a standalone entity and had to contend with volatile feedstock and energy costs that put pressure on its pricing and margins in the value chain.

This will be substantially reduced if there is a merger with Reliance.

During the year ended March 31, 2006, IPCL had posted a turnover Rs 12,362 crore while the contribution of petrochemicals to RIL's balance sheet was put at Rs 32,802 crore.

In petrochemicals alone, the merged entity will have a topline of over Rs 45,000 crore.

Analysts estimate this will swell to over Rs 50,000 crore when the current fiscal ends.

During 2005-06, RIL’s turnover from refining stood at Rs 71,117 crore.

Based on such numbers, the net turnover for the combined entity is put at Rs 93,947 crore.

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