The document discusses the proposed mergers of major Indian oil PSUs: IOCL acquiring OIL, ONGC acquiring HPCL, and BPCL acquiring GAIL. The mergers aim to create integrated oil companies with capabilities across the value chain, from upstream production to downstream refining and marketing. This vertical and horizontal integration would provide economies of scale, market power, and ability to better manage risks and profits over time. The estimated value of the merged ONGC-HPCL entity is Rs. 879 billion.
The document discusses the proposed mergers of major Indian oil PSUs: IOCL acquiring OIL, ONGC acquiring HPCL, and BPCL acquiring GAIL. The mergers aim to create integrated oil companies with capabilities across the value chain, from upstream production to downstream refining and marketing. This vertical and horizontal integration would provide economies of scale, market power, and ability to better manage risks and profits over time. The estimated value of the merged ONGC-HPCL entity is Rs. 879 billion.
The document discusses the proposed mergers of major Indian oil PSUs: IOCL acquiring OIL, ONGC acquiring HPCL, and BPCL acquiring GAIL. The mergers aim to create integrated oil companies with capabilities across the value chain, from upstream production to downstream refining and marketing. This vertical and horizontal integration would provide economies of scale, market power, and ability to better manage risks and profits over time. The estimated value of the merged ONGC-HPCL entity is Rs. 879 billion.
The document discusses the proposed mergers of major Indian oil PSUs: IOCL acquiring OIL, ONGC acquiring HPCL, and BPCL acquiring GAIL. The mergers aim to create integrated oil companies with capabilities across the value chain, from upstream production to downstream refining and marketing. This vertical and horizontal integration would provide economies of scale, market power, and ability to better manage risks and profits over time. The estimated value of the merged ONGC-HPCL entity is Rs. 879 billion.
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Q) Analyze the merger of Indian oil PSUs: IOCL, HPCL and BPCL.
Justify from a Vertical
Integration and value chain strategic capacity perspective of growth. What is the value of the merged entity?
As per the latest report of the government, 3 Major mergers are happening in the country to create Mega companies in the Oil industry which are as follows:
1. ONGC-HPCL 2. Indian Oil-Oil India Limited 3. BPCL-GAIL This 3 mergers would create 3 mega companies in the Oil industry which would be competitive globally being vertically integrated in multiple segments. While ONGC-HPCL & Indian Oil-Oil India Limited is a vertical integration story, BPCL-GAIL is a Horizontal Expansion story where one is Oil marketer & the other is a Gas Marketer.
ONGC is on the verge of acquiring the governments 51.11% stake in oil retailer Hindustan Petroleum Corporation (HPCL), the government has lined up two more such big mergers under a grand plan to create three oil PSUs with integrated operations. Indian Oil Corporation (IOC), the countrys largest company by revenue, is to acquire the governments 66.13% stake in upstream firm Oil India (OIL) and another oil marketer, Bharat Petroleum Corporation (BPCL) is to acquire the governments 54.88% stake in GAIL (India), the dominant gas transporter and marketer. The other 2 mergers would happen once the ONGC-HPCL merger is completed and is successful to not make any major mistakes.
There are 2 major reasons for the merger of the following companies:
1. Acquiring Resources & Capabilities
By going for vertical integration, each company that is acquiring a new company would gain a new capability which didnt have like ONGC would now have significant new capability to Distribute & market as well as refining of Oil.
2. Cost Economies & Market Power
By increasing gaining new abilities, the companies would now achieve better economies of scale and they would now be able to negotiate prices in the global market as well as absorb cost inefficiencies of the system.
The idea is to merge Upstream Oil companies with the downstream oil companies to create an integrated Oil company which would allow it to will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders. Also this would better the ability of the companies to bargain prices of Oil in the Spot markets across the world. This is in line with the global practice in Oil industry where integrated company can better absorb the price fluctuations in the market and consistently maintain good profits over a period of time. Eg. BP, Shell.
The rough estimation of the value of the combined ONGC-HPCL can be estimated at Rs.879 billion.
