Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Sengupta Committee recommends merger of 5 oil majors - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 6, 2000

    Sengupta Committee recommends merger of 5 oil majors

    The Sengupta Committee has recommended the merger of Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), Cochin Refineries (CRL), Bongaigaon Refineries (BRPL) and Numaligarh Refinery (NRL). The objective is to create a company with considerable refining and marketing skills.

    Apart from the doubt that since the earlier Sengupta Committee report recommendations have been rejected and there is no reason why the current one should be accepted, there could be other consequences of the current recommendations.

    The suggested merger proposal if it comes through would create a viable giant that could complete internationally. For instance, BPCL has a refining capacity of 7.3 million tonnes per annum in Mumbai (West India) while it sells almost 18 million tonnes through its all India retail network of 4,376 petrol pumps. HPCL has two existing refineries in Mumbai (5.5 million tonnes) Vizag (4.5 million tonnes in East India) and plans to set up one more in Bhatinda (North India). It also possesses a 330,000 tonne lube refinery. The company has a network of almost 4,300 petrol pumps. CRL is a stand-alone refinery based in the South while BRPL and Numaligarh Refineries (where BPCL has a stake) are stand-alone refineries in the North East.

    So far BPCL meets its refining requirements through Madras Refineries (South) and Indian Oil Corporation (IOC) for North India but post deregulation this will not happen. Hence the need for an all India refining network.

    Reliance Petroleum (RPL) has already entered into an agreement with IOC under which the latter will lift its entire production till deregulation. Post deregulation there will be a joint venture between the two companies for marketing the output. Similar is going to be the case with Madras Refineries which is going to supply IOC since the latter does not have a refinery down South.

    However, stand-alone private sector refineries will be at the mercy of the public sector giants who have the distribution network. For Essar Oil, the proposals could spell disaster as the company doesn’t have a marketing agreement in place. The contours of the joint venture between IOC and RPL are not yet clear as regards the shareholding pattern and management control.

    If the government were to go through with this proposal, it would be effectively creating an oligopoly in the market - in both the refining and distribution segments. At the one end would be the IOC-RPL combine and on the other would be the BPCL-HPCL combine.

    Second it’s not easy to integrate the operations of companies such as HPCL and BPCL, RPL and IOC.

    Third, post integration the privatisation of even one of these entities is going be extremely difficult as it would become politically sensitive. It is easier to privatise the existing stand alone companies.

    Fourth it is not yet clear as to what is the thinking in the government over the recast of the oil exploration sector and the gas distribution sector. As of now Oil and Natural Gas Commission, the premier oil exploration company which supplies around 45% of the crude requirements of the refining sector is to be retained as a public sector unit. So is the case with the Gas Authority of India, which is the premier gas distributor. Internationally however, the trend is towards having integrated exploration, refining and distribution entities.

    All in all extremely uncertain times for the oil sector.

    Market View:
    BPCL and HPCL have been rated as buys primarily due to the possibility of privatisation and the expected alignments between them and the stand–alone refiners. The uncertainty over the acceptance of the Sengupta committee recommendations would only delay these measures further.



    Equitymaster requests your view! Post a comment on "Sengupta Committee recommends merger of 5 oil majors". Click here!


    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    Oil India Ltd: A weak quarter (Quarterly Results Update - Detailed)

    Jan 24, 2017

    Oil India Limited announced results for the quarter ended September 2016. The company has reported an 6.5% and 7.8% Year on Year (YoY) decline in sales and net profit respectively during the quarter.

    GAIL: A Robust Quarter (Quarterly Results Update - Detailed)

    Dec 3, 2016

    GAIL (India) Ltd has announced results for the quarter ended September 2016. The company has reported 16 % year on year (YoY) decline in sales, while bottom-line grew 180% YoY.

    ONGC: Lower Write-offs Support Performance (Quarterly Results Update - Detailed)

    Nov 3, 2016

    ONGC has announced results for the quarter ended September 2016. The company has reported 10.3 % year on year (YoY) decline in sales, while bottom-line grew 6.3% YoY.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 03:37 PM