The Aditya Birla Group and Hindustan Petroleum Corporation Limited (HPCL), which are the promoters of Mangalore Refineries and Petrochemicals Limited (MRPL), have decided offer a 26% stake in the company to a transnational oil major. This has been reported by a leading business daily.
Mangalore Refinery & Petrochemicals Limited (MRPL) (FY99 Sales Rs 14.2 bn) has been jointly promoted by the Aditya Birla Group and Hindustan Petroleum Corporation Ltd. (HPCL), which have a stake of 37% each. The company operates a 9 m tonnes per annum refinery. The company's output is currently sold via the HPCL distribution network.
The decision taken by promoters to invite a transnational oil company to take a stake in MRPL underscores the uncertainity surrounding the future of this sector. India's refining capacity will be more than sufficient to meet domestic demand in another one to two years. This will lead to increased competition in the sector, which may lead to thinner margins. Also, there is a fear that small and independent refineries, like MRPL, may get sidelined over the years, as mega refiners like Reliance and Indian Oil take centre stage. Therefore the need to have associations with companies that have deep pockets and access to large resources.
As a result of this move, MRPL is likely to benefit in terms of a fresh cash inflow and access to new technology. Apart from this, the company could possibly service some international markets on behalf of its new parent. Overall, this move will dramatically improve the future prospects of the company.
The stock has been rated as a 'SELL' mainly on account of excess refining capacity in India which will lead to thin margins. Moreover, given the imminent decontrol of the sector the company could be at a competitive disadvantage given its relatively lower capacities vis-a-vis its competitors. The analysts are yet to factor in the possible entry of a transnational oil company as partner.
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