Analysts' corner

Reliance Commmunications
current Price: Rs 198.30
Target Price: NA

Reliance Communications (RCom) announced the merger of its passive infrastructure company, Reliance Infratel (RTEL), with GTL Infrastructure (GTLI), an independent passive infrastructure services company.

RCom is expected to receive Rs 18,000 crore in cash which will reduce its net debt to Rs 10,000 crore and its shareholders will receive Rs 20,000 crore worth of GTL stock (the swap ratio is yet to be announced). Post the deal, RCom’s core business enterprise value is expected at Rs 30,400 crore (excluding RTEL). RCom appears reasonably valued at ~7x core FY10 enterprise value/Ebitda, and is trading at around 17 per cent premium to Bharti. Re-rating due to improving quality of balance sheet is likely to be reflected. The positive rub-off of this deal is likely on Idea. Maintain hold.

— Edelweiss Research

Godrej Consumer Products
current Price: Rs 344.50
Target Price: Rs 375

The total cost of the recent acquisitions stands at approximately Rs 2,600 crore. Overall, the acquisitions took place at an enterprise value/sale of 1.8x and approximately 14-15x FY10 earnings, and are earnings accretive. All the acquisitions are expected to be earnings accretive from the first year of their operations after consolidation with GCPL. Also, the company is planning to raise another $120-140 million (Rs 550-630 crore) through the issuance of equity, expected within a month.

Though the management (conservatively) is expecting to earn around Rs 60 crore in FY11, considering the low cost of debt, it’s earning accretive. The brokerage is maintaining earnings estimates for FY11 and FY12. It is trading at 21x its FY12E earnings per share of Rs17.8 after recent acquisitions. Maintain hold.

— ShareKhan