IOC and L&T explore pact for infrastructure projects
According to newspaper reports, the Indian Oil Corporation (IOC) and Larsen and Toubro (L&T) are planning an umbrella agreement for jointly undertaking power, petrochemicals and refineries ventures in India and abroad.
L & T is the largest engineering, procurement and construction (EPC) company (58% of total revenues) in India. The company also has major business interests in cement (24% of total revenues, capacity 12 mtpa), and software.
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. The company also operates seven pipelines out of the 10 that India has.
Although details of the pact are not yet known, the two companies could gain much from it. The tie up involves L&T providing EPC and related services to IOC for all its upcoming projects that are estimated to cost around Rs 600 bn. In this way, L&T would get a captive source of business (without the need to invest in additional equity) while IOC would get access to the services of a leading company in the sector.
However, if the deal would go through, L&T's exposure to one company would increase dramatically. This could bode ill for the company if IOC's performance were to turn for the worse. IOC, on the other hand, will be able to procure the services of one EPC contractor for all its services. Moreover, there will be cost related benefits for the IOC.
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