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IPCL sell off plan enters final phase - Views on News from Equitymaster
 
 
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  • Jan 17, 2000

    IPCL sell off plan enters final phase

    The government’s programme to disinvest its 25% stake in the Indian Petrochemical Corporation (IPCL) is to enter its final phase in this week with the Centre issuing the final agreement to the bidders.

    The government currently holds a 59% stake in IPCL and the final quotations for its stake is expected to be within 10 days. The bidders are Reliance Industries, Mitsubishi Chemicals and the Indian Oil Corporation (IOC)-Soros/Chatterjee consortium.

    IPCL is the second largest polymer company, has a strong distribution network and has added capacities (a 160,000 tonne polyethylene plant, a gas cracker unit and a mono-ethylene glycol plant at Gandhar) as well as import facilities.

    For Reliance, taking over IPCL will not only substantially enhance its market share in polymers, but will also give a captive customer for Reliance Petroleum’s naphtha production. Besides, IPCL’s gas cracker needs far more gas than ONGC’s gas fields can supply. Hence it can also be a customer for gas production from Reliance-Enron joint venture which has bagged the Panna-Mukta fields (gas production is likely to go up by more than 3 times, in the next couple of year’s).

    As far as IOC is concerned, IPCL provides it with entry into the downstream sector. At present, IPCL has tied up with IOC for the supply of domestic/international naphtha. In return IOC absorbs 50% of the sales tax (currently at 18%) on domestic naphtha. In the past IPCL was dependent on domestic naphtha supplies due to import constraints, which resulted in its naphtha prices being at least 18% higher than international prices.

    If Reliance were to succeed in the bidding then it would become a de-facto monopoly in the downstream petrochemical sector, while if Mitsubishi were to come up trumps, IPCL would provide it with an excellent back door enThe government’s programme to disinvest its 25% stake in the Indian Petrochemical Corporation (IPCL) is to enter its final phase in this week with the Centre issuing the final agreement to the bidders.

    The government currently holds a 59% stake in IPCL and the final quotations for its stake is expected to be within 10 days. The bidders are Reliance Industries, Mitsubishi Chemicals and the Indian Oil Corporation (IOC)–Soros/Chatterjee consortium.

    IPCL is the second largest polymer company, has a strong distribution network and has added capacities (a 160,000 tonne polyethylene plant, a gas cracker unit and a mono–ethylene glycol plant at Gandhar) as well as import facilities.

    For Reliance, taking over IPCL will not only substantially enhance its market share in polymers, but will also give a captive customer for Reliance Petroleum’s naphtha production. Besides, IPCL’s gas cracker needs far more gas than ONGC’s gas fields can supply. Hence it can also be a customer for gas production from Reliance–Enron joint venture which has bagged the Panna–Mukta fields (gas production is likely to go up by more than 3 times, in the next couple of year’s).

    As far as IOC is concerned, IPCL provides it with entry into the downstream sector. At present, IPCL has tied up with IOC for the supply of domestic/international naphtha. In return IOC absorbs 50% of the sales tax (currently at 18%) on domestic naphtha. In the past IPCL was dependent on domestic naphtha supplies due to import constraints, which resulted in its naphtha prices being at least 18% higher than international prices.

    If Reliance were to succeed in the bidding then it would become a de–facto monopoly in the downstream petrochemical sector, while if Mitsubishi were to come up trumps, IPCL would provide it with an excellent back door entry into the domestic petrochemical sector.

    Market View:
    While IPCL’s business fundamentals remain weak, a change in management is expected to result in a sharp re–rating of the stock. try into the domestic petrochemical sector.

     

     

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