British Petroleum (BP) Amoco buys out Castrol - Views on News from Equitymaster

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British Petroleum (BP) Amoco buys out Castrol

Mar 15, 2000

BP–Amoco is to take over UK lubricants firm Burmah Castrol for $ 4.7 bn. The latter holds 51% of Castrol India, which has a market share of around 20%. BP Amoco is one of more upstream–oriented European companies within the integrated oil sector. The takeover of Burmah Castrol would give it a leading presence in the lubricant sector as well.

Castrol is India’s largest private sector lubricant company and has a network of 7 blending plants and a nationwide distribution network comprising 80,000 outlets. Automotive lubes account for 75% of the company’s turnover with industrial tubes contributing the balance.

Interestingly, BP–Amoco had bid for Indian Petrochemicals (IPCL) when the government originally announced the disinvestment proposal. The company later withdrew from the bidding ostensibly on the ground that the decision regarding the bids was delayed.

The takeover of Burmah Castrol provides a backdoor entry for the BP–Amoco. It is quite possible that it could use Castrol as a vehicle for further investments into upstream oil exploration in India. However, it is also possible that the company might float a 100% subsidiary for routing its upstream investments.

India is an important lubricant market and Castrol India was the third largest market for Burmah Castrol the worldover. How much importance BP–Amoco would give to the Indian market remains to be seen.

Market View:
Analysts have rated Castrol India as a buy primarily due to its strong branding and its success over the past six year’s in increasing market share from 12% in 1992 to 20% in 1999 despite the entry of majors such as Shell, Elf etc.

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