The Indian Oil Company, who's bid for the 25% stake in Indian Petrochemicals Corporation Limited (IPCL) had been earlier rejected, has approached the government with a proposal to again bid for the stake. The new bid, however, will be in collaboration with other contenders. IOC has also stated that it is not averse to a pact with Reliance Industries Limited for jointly bidding for the IPCL stake. This has been reported by a leading national daily.
Indian Oil Corporation (IOC) is India's largest company in terms of sales. The company has a refining capacity of 31.4 m tonnes per annum (45% of the domestic refining capacity). The company also operates seven pipelines out of the 10 that India has.
The 25% stake in IPCL, which has been put up for bidding by the government, is of prime importance for both existing and prospective players in the petrochemicals sector. While the prospective players like Dow Chemicals would get a jump-start in the domestic market (IPCL has two petrochemical complexes, and another one is nearing completion), existing players (read Reliance) would be able to further consolidate their domestic market shares.
A successful bid by IOC would through up opportunities to exploit the synergies existing between the two companies. Firstly, as IOC's products could serve as key raw material for IPCL, savings would arise on account of the increased integration in operations. Moreover, as both companies have extensive distribution networks, rationalisation of supply chains could lead to substantial cost savings. Most importantly, IOC would be able to gain critical mass to take on the Reliance Group, which has already challenged IOC's numero uno status in the domestic refining sector.
The IOC stock has been rated as a 'BUY' by analysts mainly because of its strong marketing infrastructure, large refining capacity and control of major import infrastructure.
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