Talk of HPCL-ONGC merger leaves Dalal Street analysts anxious
NEW DELHI: Shares of HPCL continued to fall on Wednesday, up to 5% in intra-day trade after reports emereged that ONGC may acquire it in Rs 44,000 crore deal. Market participants remained apprehensive about the reported merger and how BPCL would figure in the equation. BPCL also slipped nearly 3% during the day while ONGC marginally recovered to close 0.23% higher. The government however has played down reports of the merger.
“There is uncertainty as to how the merger will take place so the stocks of HPCL and BPCL have fallen. The dynamics of the merger has to be seen but if it goes through, it’ll be beneficial for ONGC,” said said Raamdeo Agrawal, co-founder of Motilal Oswal.
Foreign brokerage Morgan Stanley sees limited impact on HPCL/BPCL if government transfers ownership to ONGC. ONGC's leverage could rise in the near-term and HPCL/BPCL could lower ONGC's leverage only by FY20-21, it said.
However some analysts were critical of the merger calling it a cash transfer from the ONGC to the general budget, and added that HPCL may get more of ONGC's market cap if the deal were to go through.
Some analysts feel there is a bigger possibility of a merger between ONGC and BPCL. Such a merger would improve the combined free cash flow in the coming years while making the country’s E&P capabilities stronger and reducing dependence on imports, a Motilal Oswal report said. However it added that the merger would be marginal value destruction for BPCL, as the combined entity would result in reduced return ratios. BPCL’s RoE could fall to 15.2% in the combined entity from 16.5% currently, while its RoCE could fall to 9.8% from 10.1% currently, it said.
“There is uncertainty as to how the merger will take place so the stocks of HPCL and BPCL have fallen. The dynamics of the merger has to be seen but if it goes through, it’ll be beneficial for ONGC,” said said Raamdeo Agrawal, co-founder of Motilal Oswal.
Foreign brokerage Morgan Stanley sees limited impact on HPCL/BPCL if government transfers ownership to ONGC. ONGC's leverage could rise in the near-term and HPCL/BPCL could lower ONGC's leverage only by FY20-21, it said.
However some analysts were critical of the merger calling it a cash transfer from the ONGC to the general budget, and added that HPCL may get more of ONGC's market cap if the deal were to go through.
Some analysts feel there is a bigger possibility of a merger between ONGC and BPCL. Such a merger would improve the combined free cash flow in the coming years while making the country’s E&P capabilities stronger and reducing dependence on imports, a Motilal Oswal report said. However it added that the merger would be marginal value destruction for BPCL, as the combined entity would result in reduced return ratios. BPCL’s RoE could fall to 15.2% in the combined entity from 16.5% currently, while its RoCE could fall to 9.8% from 10.1% currently, it said.
