Active Stocks
Tue Mar 19 2024 15:58:41
  1. Tata Consultancy Services share price
  2. 3,977.55 -4.03%
  1. Tata Steel share price
  2. 148.65 -0.64%
  1. Bharti Airtel share price
  2. 1,227.85 0.23%
  1. Power Grid Corporation Of India share price
  2. 258.95 -2.28%
  1. ITC share price
  2. 409.50 -1.89%
Business News/ Market / Mark-to-market/  The BPCL-GAIL arranged marriage
BackBack

The BPCL-GAIL arranged marriage

The proposed BPCL-GAIL deal appears to be in keeping with the government's proposal to create an integrated public sector 'oil major' eventually

The BPCL stock has performed comparatively better so far this fiscal year, going up 15% against the 6.4% rise in GAIL shares. Graphic by Subrata Jana/MintPremium
The BPCL stock has performed comparatively better so far this fiscal year, going up 15% against the 6.4% rise in GAIL shares. Graphic by Subrata Jana/Mint

A Mint news report on Monday said state-run Bharat Petroleum Corp. Ltd (BPCL) is in talks with the country’s largest natural gas transporter GAIL (India) Ltd to acquire the government’s majority stake. The talks are at a nascent stage and no formal announcements have been made.

The move appears to be in keeping with the government’s proposal to create integrated public sector “oil major" eventually. Assuming this deal takes place, what are the implications?

The government will be the biggest beneficiary of this deal. As you know, the government has a divestment target of Rs72,500 crore for this fiscal year (FY18) and a transaction of this nature would support meeting the target to that extent. Based on Monday’s market price, the government’s 54.88% stake in GAIL is worth about Rs37,188 crore.

Of course, considering that BPCL is essentially a refining and marketing company and GAIL is a gas transporting firm, there are no apparent synergies from this deal.

To an extent, GAIL’s vast experience in gas sourcing and distribution can be expected to be beneficial for BPCL. Having said that, BPCL may have to take debt on its books, which may not go down well with investors. As on 31 March, the refining company’s consolidated borrowings stood at Rs31,473 crore and its net worth was Rs32,778 crore.

Nevertheless, according to an analyst who did not want to be named, if the entire stake is sold at no premium to the current market price, the transaction would be about 5% earnings accretive on BPCL’s FY18 numbers. This is after taking into account the increase in finance costs assuming the deal is financed through debt.

As far as GAIL is concerned, if BPCL were to acquire the government’s stake in the company, then there won’t be any significant impact. That’s because it is merely a transfer of ownership from one entity to another.

What of the stocks?

It goes without saying that developments on this front will be crucial to watch in the coming days. The valuation of the deal will be a critical factor to monitor. In the interim, till more clarity emerges, this could act as an overhang on both stocks. It helps that the BPCL share has risen 22% from its closing low in late June. The company is likely to gain from robust refining margins (helped by supply disruption in the US Gulf coast refineries owning to Hurricane Harvey) in the current quarter.

The BPCL stock has performed comparatively better so far this fiscal year, going up 15% against the 6.4% rise in GAIL shares. During this time, the benchmark Sensex has gained 9.5%.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 19 Sep 2017, 07:27 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App