The board of directors of Reliance Industries (RIL), India's largest private company, and Reliance Petroleum (RPL) are set to meet on March 2 to consider a merger of the two companies.

RIL currently holds 70.6% in RPL.

More clarity on the swap ratio is expected to emerge on Monday. For the moment, many feel the move will benefit RIL's shareholders more than those holding RPL shares.

RIL is currently trading at Rs 1,265.05 per share, while RPL trades at Rs 76.20 per share. On that basis, the swap ratio works out to one share of RIL for 16.6 shares of RPL.

On the basis of book value, the swap ratio is expected to be around 20 shares of RPL for every one share of RIL.

Analysts, too, see the swap ratio being set in favour of RIL's investors. The RPL stock is thus expected to advance or decline based on the swap ratio set.

Suppose the ratio is around 1:20 (one share of RIL for 20 shares of RPL). RPL's shares could then drop around Rs 63 per share (Rs 1,265.05/20).

Given that the two companies are in the same field, operational synergies are likely to be limited, though the combined entity would benefit from common management and economies of scale.

But there would be significant benefits on the tax front. RPL refineries are totally tax-free and RIL stands to benefit from that.

Analyst Deepak Pareek from Angel Broking, for one, says RPL could use certain products of RIL without any tax implication and vice versa.

There could be some marginal transfer pricing benefits too, said Pareek.

RPL is past the capital expenditure stage and would commence production from the world's largest refinery by December this year. This means RPL would be cash-flow positive by the fiscal end and these cash flows would be consolidated with RIL. This would strengthen its balance sheet and help RIL divert cash to more profitable businesses.

An analyst said on the condition of anonymity that the move comes at the right time, given that the refining business is not doing too well.

Pallavi Pengonda/ DNA-Daily News & Analysis Source: 3D Syndication