CPCL merger with IOC off for 2 more yrs

Mumbai, Nov 14 | Updated: Nov 15 2005, 06:07am hrs
The merger of Chennai Petroleum Corporation Limited (CPCL) with Indian Oil Corporation (IOC) has been put on the back burner for at least another two years as the National Iranian Oil Company (NIOC), which owns 15% of the company, has opposed the merger. NIOC's nominee on the board of CPCL has ruled out the possibility of either quitting CPCL or swapping CPCL's shares for those of IOC's. NIOC's stake in CPCL is the only hurdle in the merger.

IOC holds 52% of CPCL, which owns and operates one of the largest refineries in South India, at Manali, apart from a smaller refinery at Panagundi.

Addressing a conference call, CPCL director (finance) NC Sridharan said, "The discussions are taking place in a very informal way between IOC and the National Iranian Oil Company."

When asked to stipulate a time frame, Mr Sridharan said, "It would happen in 24 months as a structured discussion between the two has not taken place."

Analysts believe that NIOC could be fearing unfair swap ratio over low valuation as CPCL is better poised with an operating margin of 7.61% while IOC has an OPM of 3.36%, due to the subsidy burden. Analysts said that CPCL currently enjoys an earning per share (EPS) of Rs 6.28 while IOC has an EPS of Rs 3.25 for the second quarter of the current fiscal. However, IOC scores on higher dividend outgo with Rs 14.50 per share as compared to Rs 12 for CPCL. CPCL has reported a net profit of Rs 596.96 crore on a turnover of Rs 16,279 crore for the year ended March 31, 2005.

It may be recalled that IOC was keen to buy out the stake of the NIOC before proceeding with the merger. However, NIOC is against selling its 15% stake in CPCL. He, however, added that IOC can initiate a structured discussion subsequent to which it should not take much time to go through the formalities. The proposed merger would have enabled IOC to enhance its profitability as oil marketing companies are burdened with subsidy while refineries are outside the purview, analyst said.

IOC chairman S Behuria had at the company's recent annual general meeting said, "We are in talks with NIOC for swapping CPCL's share in our favour and it will take some time to seal the deal."