IBP to merge with Indian Oil

IBP may be kept as separate brand.

In an attempt to become the least-cost supplier of petroleum products, state-owned Indian Oil Corporation (IOC) on Wednesday decided to merge its subsidiary IBP, in which it holds a 53.58 per cent stake, with itself. The IOC board will approach the petroleum ministry for approval.

IOC Chairman MS Ramachandran said the company would offer IOC's shares to IBP shareholders in a swap. IOC would not make an open offer, he said. "We will, however, require the government's nod for the merger," he added.

"As per our calculations, offering 46.42 per cent of IBP shareholders IOC's shares will dilute the government equity (in IOC) very marginally, by about 1-2 per cent," Ramachandran said. Market analysts, however, expect the IBP-IOC share swap ratio to be 1.2:1.

The IBP scrip gained 1.92 per cent to close at Rs 589.90 on the Bombay Stock Exchange yesterday and the IOC scrip lost 3.78 per cent to close at Rs 519. IOC's market capitalisation is Rs 60,620 crore and that of IBP Rs 1,307 crore. IBP has 2,526 outlets and a market share of about 12 per cent.

Ramachandran indicated that IBP could be retained as a separate brand. "The board has not taken a view on what to do with the IBP brand, but we feel having a separate brand has its advantages," he said.

IOC sources said the merger was expected to materialise in 6-12 months. "It does not make sense to have two companies for marketing. Besides cost savings, the merger will build synergy in operations and bring efficiency gains," a source said. IBP sourced nearly 88 per cent of its petroleum product needs from IOC in 2002-03.

The merger will add about Rs 10,000 crore to IOC's topline and about Rs 100 crore to its net profit. IOC recorded a turnover of Rs 124,124 crore and a net profit of Rs 6,098 crore in 2002-03. IBP notched sales of Rs 8,937 crore with a net profit of Rs 87.75 crore.