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Lubrizol becomes a 50:50 joint venture between IOC and Lubrizol USA - Views on News from Equitymaster
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  • Feb 15, 2000

    Lubrizol becomes a 50:50 joint venture between IOC and Lubrizol USA

    The government has disinvested its 60% of its holding in Lubrizol India in favour of Indian Oil. IOC has further disinvested 10% to Lubrizol USA at a price of Rs 1,230 per share.

    IOC is India's largest company. It dominates the oil sector with a refining capacity of almost 32 million tonnes and a 55% market share. Its distribution network includes 6,779 petrol pumps, 3423 dealers and 2902 LPG distributors.

    As far as IOC is concerned, Lubrizol India becomes a 50:50 joint venture (JV) with Lubrizol USA. The company was offering the Lubrizol additives through its infrastructure any way but this move would enable the company to show the Lubrizol numbers in its annual accounts though the company may not be able to add the profits to its numbers since consolidated accounts are not presented in India.

    It also remains to be seen whether the terms of use of IOCís infrastructure change, now that the company has become a JV. If not, the payment by IOC to the government would for all practical purposes be a book entry.

    The one impact that cannot be determined right away is the importance that Lubrizol of USA attaches to this joint venture. If it brings in new technology, introduces new products and captures market share than the 50% stake that IOC holds can become more valuable than the price of Rs 1,230 per share that the company has paid to the government.

    As far the government is concerned this 10% disinvestment has been done in a relatively sophisticated manner than the one of Modern Foods. A business in the non-core area routed through an Indian company is not likely to create any political controversy. And with the additive business bound to get more competitive in the future this is the best time for the government to disinvest.

    Market View:
    Most analysts have rated IOC as hold primarily due to its plans to issue further equity and get its stock listed on the New York Stock Exchange. Besides, the impact of the higher crude prices could impact its bottomline growth in the next quarter.



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