Indian Oil Corporation may buy out the government's stake in Madras Refineries (MRL), in effect converting it into a subsidiary. This decision follows the recommendations of the Nitish Sengupta Report that the public sector stand-alone refineries be merged into bigger oil companies such as IOC, BPCL and HPCL.
Indian Oil Corporation (IOC) is India's largest company in terms of sales. The company has a refining capacity of 31.4 MMTPA (45% of the domestic refining capacity). The company also operates seven pipelines out of the 10 that India has. MRL, on the other hand, is purely a refining company with a total capacity of 7 MMTPA.
The impending deregulation of the petroleum sector will unleash stiff competition amongst companies. Thus, the move to acquire MRL should be seen as a step in the right direction for both the companies. While, MRL will get access to a large distribution network, IOC would get an entry into the southern part of the country (as MRL refineries are located in the South). The combined entity will have a capacity of 38.4 MMTPA, 6,779 petrol pumps and 2,902 LPG distributors.
Competition in the sector is already heating up with Reliance Petroleum going on stream with a capacity of 27 MMTPA later this year. Such world size capacities would provide a competitive advantage in terms of lower costs, which would ultimately hurt smaller players like MRL.
Analysts have rated MRL stock as a 'BUY' mainly on expectations that the company would be merged or be taken over by a larger company.
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