Wednesday, April 26, 2006

An arbitrage opportunity?

I was reading a news about IPCL planning to merge with itself 6 Reliance companies and these are Apollo Fibres, Central India Polyester, India Polyfibres, Orissa Polyfibres, Recron Synthetics and Silvassa Industries. And the swap ratios are as follows - one equity share of IPCL for every 25 shares of AFL, 23 equity shares of CIPL, 28 equity shares of IPL, 28 equity shares of OPL, 34 equity shares of RSL and 38 equity shares of SIPL. I checked in iccidirect and out of these companies, I could find only 2 listed – Central India Polyester with a CMP of 10.73 and Recron Synthetics with a CMP of 2.45.

That means, if we purchase 23 shares of CIPL at 10.43 - a purchase price of 246.79 rupees, we will get one share of IPCL with a CMP of 266 – a gain of 19.21 rupees.

Now lets look at Recron Synthetics. If we purchase 34 shares of RSL at 2.45 – a purchase of 83.3 rupees, we will get one share of IPCL with a CMP of 266 – an amazing gain of 182.7 rupees !!!. Does this really compute or have I made a mistake somewhere? I'm not sure.

7 comments:

Shankar said...

Sounds crazy .. but did Recron Synth fall by 20% today when the market went up by 250 pts ... there is something more to this !!!

Warm Rgds
Shankar

Anonymous said...

RSL is of CMP as on 27th 7.55. on 26th also it wasnt on 2.45.

http://www.bseindia.com/price_finder/stockreach.asp?scripcd=500362

-Sumeet

Prasanth said...

Sumeet,

You are right - on BSE, CMP is 7.22 now but however, on NSE, it shows as 2.25 . How come?

Regards,

Prasanth

Ravi Purohit said...

Prasanth,

I dont think Recron is traded on the NSE. All the companies that are to be merged with IPCL are disastrous. Check their financials for the last 5 yrs.

Infact, outlook on IPCL itself is quite poor over the next 2-3 quarters. The company simply cannot pass on the rise in crude oil prices to the end consumer. Besides, lowering of excise and customs duty in the Budget further impacts its profitability.

Moral - Staying away from IPCL and all of these poorly run companies (to be merged with IPCL) is a better idea, atleast for now.

--
Ravi.

Ravi Purohit said...
This comment has been removed by a blog administrator.
protector said...

What ravi said is right I think the stock IPCL is not a good pick for investing.

Prasanth said...

Agree with you and Ravi. I was not looking at this as a long term holding. Just as an arbitrage opportunity.