Arbitrage Opportunity

Indo Rama Textiles Ltd (INDRT) - Arbitrage Opportunity

Market Price:Rs 72.10
Open Offer Price:Rs 84.15
Record Date:March 24, 2006
Date of Open Offer:April 17, 2006
Open Offer Closes:May 06, 2006

Indo Rama Textiles Ltd (IRTL) was incorporated in 1989 by Mr O P Lohia. It manufactures cotton and blended yarn, polyester cotton yarn and man-made fibre yarns. The manufacturing facilities are located at Butibori, near Nagpur ( Maharashtra ) and Pithampur, near Indore (Madhya Pradesh). The two plants produce close to 40,000 million tonnes of yarns in blends (polyester/cotton, polyester/viscose, 100% polyester and 100% viscose).

Spentex Industries has bought 1,52,86,831 shares aggregating to 49.03% of the total paid-up capital of Indo Rama Textiles Ltd on February 17, 2006 from the Lohia family at Rs 84.15 per share for about Rs 128 crore. Spentex Industries already owns around 15% stake in IRTL. The acquisition of the shares from the promoters will take Spentex's stake in the company to around 64.02%.

Pursuant to the Sebi’s Substantial Acquisition of Shares and Takeovers Regulations, 1997 and amendments thereto, Spentex Industries Ltd is making an offer to the shareholders of IRTL, to acquire a maximum of 62,35,658 fully paid-up equity shares representing 20% of the outstanding equity share capital of IRTL at a price of Rs 84.15 per equity share, payable in cash. The offer is not conditional upon any minimum level acceptance.

The specified date for the purpose of determining the names of shareholders to whom the Letter of Offer would be sent is set as March 24, 2006 . The date of opening of the offer is fixed at April 17, 2006 . & the offer would close on May 6, 2006 .

The stock is currently trading at Rs.72.10 on the stock exchange. This provides a reasonable opportunity for investors who want to take advantage of the arbitrage opportunity to earn a return of 10-12% over the next two months. The long-term outlook for man made fibre industry also looks positive in the near future. The dismantling of quotas provides immense opportunity for textile companies & related industry.

Thus considering the proposed opportunity for earning a short term return of 10-12% and the overall bullishness in the textile industry one may look at investing in the stock at current levels of Rs.72.10 per share.