Chennai Petro won't last as standalone, has to merge with us: IOC Chairman

However, much hinges on whether an Iranian firm, which holds 15% in CPCL, will sell its stake

Merger of Chennai Petroleum Corporation Ltd (CPCL) with Indian Oil Corporation is inevitable, taking CPCL's viability into account in a volatile situation, says IOC's Chairman. The public sector firm held talks with Naftiran Intertrade, the Swiss subsidiary of National Iranian Oil Company, which is yet to come forward and dilute its shareholding to pave the way for the merger.

The development is a recent twist in the company's story. Naftiran Intertrade’s stake in CPCL had, at one time, been a major issue in the wake of US sanctions against Iran. Besides, it was also a bottleneck for the company, which wanted to merge with IOC. The Iranian firm holds 15.4 per cent in CPCL, while IOC holds 52 per cent.

B Ashok, chairman, Indian Oil Corporation said under the current circumstances the viability of a standalone refinery such as CPCL's is questionable, given the current volatile situation prevalent in the sector. CPCL is the only standalone refinery in the country.

CPCL has had a rough time in recent years and even was even referred to the BIFR in 2014-15, due to an erosion of more than 50 per cent in its net worth, to Rs 1,655 crore as on March 31, 2015.  The company managed to turn around last year and by end of March 2017, its net worth was Rs 3,314 crore. CPCL also reported the second highest profit in its history, at Rs 1,029.75 crore, up form Rs 741.86 crore, a year ago.

Ashok attributed this improvement in performance due to increase in operational efficiency and successful cost cutting measures.

"In order to be a sustainable company, a company needs to be operational across segments and well diversified so that it can address volatility risk. That is what IOC did and it is better for CPCL also to be the same."

CPCL is also planning to take up a Rs 27,000 crore project for which about Rs 9,000 crore equity is required at Nagapatinam in Tamil Nadu. As a standalone company, CPCL may not be able mobilise such an amount, so we have asked the Iranian partner to bring in some equity. We have given lot of options to them (the Iranian company) and are in continuous dialogue with them," said Ashok.

Meanwhile the company reported a drop in net profit to Rs 170.89 crore during the quarter ended March 31, 2017 as against Rs 247.88 crore. The drop was mainly due to provisions the company made towards salary and pension and towards a project. Total income during the quarter rose to Rs 9,486.88 crore from Rs 9,171.69 crore.