A day after the RNRL-Reliance Power merger was announced, share price of the latter touched a 52-week high of Rs 189.80 on the Bombay Stock Exchange on Monday before settling down at Rs 181.40, up 3.6% from Friday?s close at Rs 175.15.

The boards of both the companies on Sunday approved a share swap ratio of 1: 4 based on a valuation made by KPMG. The surge in RPower shares is attributed to this ratio that favours RPower?s shareholders. Meanwhile, as expected, RNRL shares plunged 27.26% to close at Rs 46.30 on the BSE.

About 27.7 lakh RPower shares were traded on Monday, more than five times the stock?s two-week average trading volume. RNRL saw a volume of 60 lakh share, twice its two-week average trading volume.

The merger is expected to facilitate the routing of gas from Mukesh Ambani?s Reliance Industries (RIL) to RPower for fuelling its power plants, including the one proposed at Dadri. RNRL has gas supply master agreements with RIL and the merger will lead to speedy implementation of Reliance Power?s plans for setting up of 8,000 mw gas-based power generation capacity, it is believed. The merger is expected to be completed within 90 days.

The Street has been very bearish on Reliance Power. Currently, out of the 17 analysts tracked by Bloomberg, 12 have a ?sell? rating on the company with a consensus target of Rs 136, which implies a 33% downside from its current price level. Despite this, the RPower stock rallied about 4% in Monday?s trade. Analysts attribute the spurt to a slightly favourable share-swap ratio. The ratio would have been around one-for-three had it been set at Friday?s closing price for shares of both companies. Some analysts are of the view that the ratio should have been 5:1, since RNRL originally was a shell company and has no material operating assets. RNRL had a book value of close to Rs 12 and R-Power close to Rs 60.

The other view among analysts is that too much in R-Power has been given away. RPower, which has 2.8 billion outstanding shares currently, will issue 408.28 million new shares to the shareholders of RNRL, which will result in equity dilution of about 14.5% after the merger. ?It?s like giving too much and getting too less,? said an analyst with a domestic brokerage, who didn?t wish to be quoted. ?RNRL will just bring savings of some margins, but whether that is equivalent to a 14.5% dilution is difficult to absorb.

RNRL also has coal bed methane blocks and onshore drilling business, but there is a problem with regard to earnings visibility as they are still in the exploratory stage,? he said.

Durga Dath, an analyst at Goldman Sachs, said in a report, ?RNRL effectively derives most of its value from gas sales master agreement as 85% of its FY09 gross block is composed of goodwill and its CBM and oil blocks are still in the exploratory stage.?

Analysts are negative on RPower because of a number of issues. There are doubts on whether gas allocation will take place, and also, there is also a question mark over 7,500-mw Dadri project. ?The deal is 5% EPS dilutive for Reliance Power on FY10 numbers,? said a Goldman Sachs report.

Markets down marginally

Low volumes, resulting from the nationwide bandh, marked trading on the country?s bourses on Monday even as Asian markets saw predominantly weak trends. Both the benchmark indices ended with marginal losses as most market participants stayed away.

The 30-share Sensex of Bombay Stock Exchange (BSE) fell 19.51 points to close the day at 17,441.44. The broader Nifty remained almost unchanged at 5,235.90 losing 1.2 points. The NSE?s derivatives segment reported a turnover of over Rs 35,800 crore, down by 44% compared to the previous session, while the average daily turnover in the last six months stood at approximately 84,700 crore. The turnover in the cash segment on the NSE was approximately Rs 7,700 crore, a fall of 34% over Friday?s volumes. The average daily turnover in the last six months was at over Rs 13,800 crore. The Indian market has remained volatile over the past few trading sessions, gaining 4% in June over May.