• Indian Oil Corp sees more synergy in buying PSU rivals than oil producers

    It would make more sense for Indian Oil (IOCL), the country’s biggest refiner, to acquire rival Bharat Petroleum or Hindustan Petroleum or natural gas marketing company GAIL (India) than a producer like Oil India as part of the government’s plan to create a major state-owned energy company , the finance chief of IOCL said.

    “Broadly , there are just two potential acquirers -Oil & Natural Gas Corp. and Indian Oil -and there are four potential targets -BPCL, HPCL, GAIL and Oil India,“ AK Sharma, director (finance) of Indian Oil, told ET in an interview, while analysing combinations. “It’s all very hazy right now. The government will take a final call on who should merge with whom.“

    The oil ministry has asked stateowned oil companies to indicate their preference for a partner in the proposed merger. The government indicated in the Budget its intention to restructure state-owned oil companies to form an integrated public sector `oil major’ that will match the performance of international and domestic private sector oil and gas companies. Each major state-run oil company must submit a separate plan to the oil ministry . If Indian Oil were to acquire HPCL or BPCL, it would bring a lot of synergy, Sharma said .“Infrastructure and logistics duplication can be avoided. We can have common user facilities,“ he said, adding that combining two oil marketing companies can have an adverse effect on competition.

    The merger must result in at least two state marketing companies, which along with private players, will ensure fair play for consumers, Sharma said.

    Of India’s oil refining capacity of 230 million tonnes per annum, Indian Oil has 80 million tonnes, BPCL 30 million tonnes and HPCL 24 million tonnes. Reliance Industries, controlled by Mukesh Ambani, has a capacity of 60 million tonnes a year. Indian Oil has 45% of the 58,000 fuel retail outlets in the country, while BPCL and HPCL have a quarter each.

    Acquiring GAIL is an option because it ties in with Indian Oil’s gas business. Indian Oil is the secondlargest gas marketer in the country , and, at the current rate of investment, its gas business can exceed that of GAIL’s in the next few years, Sharma said.

    “Merging Oil India with Indian “Merging Oil India with Indian Oil may not bring much technical synergy but can add to balance sheet strength,“ said Sharma, adding that Indian Oil had a very small presence in exploration and production and bringing in another E&P company may not make sense.

    India’s oil demand growth slowed to 5% in 2016-17 from 11% in the previous year. “That’s a matter of concern,“ Sharma said, adding that he expected less than 4.5% sales growth in petrol and diesel in 2017-18.

    Indian Oil plans to spend Rs 20,000 crore in the current financial year, Sharma said.

    At March-end, its borrowings were Rs 55,000 crore and its debt-equity ratio stood at 0.54, he said. The company paid about Rs 10,000 crore as dividend in 2016-17. John Kuhn Jersey

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