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Reliance eyes HPCL, BPCL and IBP - Views on News from Equitymaster
 
 
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  • Oct 21, 1999

    Reliance eyes HPCL, BPCL and IBP

    The Reliance group is looking at acquiring public sector oil marketing companies. These include Hindustan Petroleum Corporation Limited (capacity 10 m tpa), Bharat Petroleum Corporation Limited (7.3 m tpa) and IBP Limited.

    Reliance Industries (FY99 Sales Rs 14.5 bn) is India's largest private sector company. Its activities encompass polyester, fiber intermediaries, polymers, chemicals and branded textiles. The new ventures are in the core sectors of oil and gas, power and telecom. Reliance Petroleum, a Reliance group company, has set up the world's largest single location refinery having a capacity of 27 m tonnes per annum, at a cost of Rs 142.5 bn.

    Reliance already has a joint venture with Indian Oil Corporation to take over the marketing of RPL's output in the post 2002 era, when the sector is deregulated. The acquisitions, if they were to go through, would give the Reliance group complete dominance in the oil sector. It already is the largest player in the petrochemicals sector. The planned move will propel Reliance as one of the large players in the global markets.

    Acquisition of these companies would generate tremendous scope for economies of scale and scope to be exploited. Moreover, RPL would get access to a wide distribution network through which it could directly market its own products. Also, rationalisation of the marketing network would throw up opportunities to cut costs.

    However, the integration of the companies would be a very difficult task, given the variation in cultures and pay scales. This could lead to complications and delay the process, thus postponing the benefits. Moreover, the company's existing marketing joint venture with IOC could be jeopardised, given that IOC itself is a major marketing and refining company.

    The plan seems ambitious and is based on the assumption that the government will actually transfer the management of these enterprises to the entity that acquires strategic stakes.

     

     

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