State-run refiner Hindustan Petroleum Corporation Ltd (HPCL) has begun talks with its parent, Oil and Natural Gas Corporation Ltd (ONGC), to merge Mangalore Refinery and Petrochemicals Ltd (MRPL), as it looks to tap benefits accruing from such an exercise, a top company official has said.
“With MRPL, HPCL’s synergies comes by merging the two companies,” said M K Surana, Chairman and Managing Director, HPCL. “Talks are progressing with ONGC on that,” he added. ONGC owns 71.63 per cent in MRPL, in which HPCL has a 16.96 per cent stake.
In January this year, the government sold its 51.11 per cent stake in HPCL to ONGC for Rs 36,915 crore, throwing up challenges on consolidating many group companies. Post-merger, MRPL fuel stations will get re-branded as HPCL.
“After we merge, there won’t be two separate entities, namely, HPCL and MRPL. HPCL has got a brand value and that brand value has got a number. We have got 15,062 outlets and MRPL has six outlets. So, the logical thing would be that MRPL outlets would be rebranded as HPCL, because MRPL itself will get rebranded in that situation,” Surana said at a media conference on Thursday.
The point, according to Surana, is not what it is (going to be) called. “The question is the synergy which it gives as and when we decide to acquire or merge, whatever it is. There are various options available for doing that, which will be a combination of either cash or swap or a combination of the two, depending on what the two companies decide, because it is not a third entity we are trying to acquire. It is within the group we have to consolidate. So, we need to see the most efficient way of doing that. HPCL only needs to see what brings the best value to the group and to the legal entities involved,” the CMD said.
Explaining the synergies arising from the deal, Surana said there is a “general congruence of thought between all the connected parties that this is the right thing to do, and it will bring value to the group in more than one way”.
The obvious one is HPCL sells more than what it makes. MRPL has a standalone refinery, which assures supply and market. But what is not that obvious is further synergies. Each refinery has got multiple units, the primary distillation, the secondary processing, finishing units and each refinery is designed for certain set of design parameters. But, when you have more than one refinery in the kitty, you can also take advantage of the small questions which you have got in certain intermediate units, and there you can create value by optimised use of the intermediate units, which is one thing that gives additional benefit, he said.
The third is economies of scale. “On the West Coast of India, Mumbai does not have a facility to berth very large crude carriers that bring crude. But, if we are bringing the crude together, we can unload a part of the crude in Mangaluru and then do a lighterage to Mumbai. We can get substantial freight advantage coming up to the Indian coast, only a lit bit is there for the lighterage. Besides, we have got a big R&D facility in Bengaluru, which can be utilised for the whole group. We can optimise the total product slate, total supply logistics, have better logistics advantage, along with other oil marketing companies also, when you have got a product supply position available in different points of the country.
“We also have a joint venture pipeline between ONGC and HPCL, linking Mangaluru-Hassan-Bengaluru, which shifts the products predominantly from Mangaluru refinery/ coast. We are in discussions to integrate these facilities and create value in the overall production, movement, sale and distribution of products,” Surana added.
He declined to give a time line for the merger. “Because there are three entities involved, it has to be approved by the board of all the three companies and there is also a process that has to be followed, based on the statutory requirements,” he added.