Deal not value accretive for HPCL shareholders: Analysts
Hindustan Petroleum Corporation (HPCL) slipped 4.4 per cent to ~367 on the BSE on Thursday, a day after the Union Cabinet approved the sale of its 51 per cent equity in the company to Oil and Natural Gas Corporation (ONGC). Since July 12, HPCL has outperformed the market by gaining 12 per cent till Wednesday, on reports that the merger will be completed by the end of this financial year. ONGC, which ended 1.8 per cent higher at ~166 on Thursday, has gained 1.7 per cent against a 0.66 per cent rise in the Sensex since July 12.
Analysts have given a thumbs-down to the deal, which they feel will not be value accretive to HPCL’s shareholders. HPCL will continue to operate as a separate entity, albeit with a possibility of a merger with MRPL, another ONGC subsidiary. Also, as a majority shareholder, it will be within the means of ONGC to leverage HPCL’s balance sheet, they said.
“A full merger will not be value accretive to the shareholders of HPCL, which has enjoyed a 900 per cent appreciation in price in the past three years. That is because HPCL and Bharat Petroleum Corporation have been the two biggest beneficiaries of free pricing of petrol and diesel,” a note from Angel Broking said.
Besides, the merger will be a long-drawn process. Analysts at Kotak Institutional Equities have cautioned that they don’t foresee operational or financial synergies from this transaction and expect HPCL’s stock to erase all recent gains.
“HPCL’s minorities will not gain anything, irrespective of the price, if the government chooses to avoid an open offer. HPCL’s stock will likely reverse the recent rally, which was backed by the hopes of an open offer based on reports indicating that the government may seek a 40-50 per cent premium price from ONGC,” wrote Tarun Lakhotia and Akshay Bhor at Kotak in a note.
“The deal will not benefit the retail shareholders of HPCL. At current levels, we are not comfortable holding on to HPCL and have a reduced rating on the stock. ONGC, on the other hand, has huge value and becomes a buy. We have a target of ~217 on the stock,” explains A K Prabhakar, head of research at IDBI Capital.