ONGC deal is not value accretive for HPCL shareholders: analysts

STOCK MARKET - Hindustan Petroleum Corporation Limited (HPCL) slipped 4.4 per cent to Rs 367 on the Bombay Stock Exchange (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) post market hours, while ruling out the possibility of an open offer to the minority shareholders of HPCL given no change in effective ownership.

Since July 12, HPCL has outperformed the market by gaining 12 per cent till Wednesday on reports that the merger with ONGC will be completed by the end of this fiscal year. ONGC, which ended 1.8 per cent higher at Rs 166 on Thursday, has gained 1.7 per cent as compared to 0.66 per cent rise in the S&P BSE 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. Going ahead, HPCL will continue to operate as a separate entity, albeit with a possibility of a merger with MRPL – another ONGC subsidiary – in the future. On the other hand, as a majority shareholder in the company, it will be within the means of ONGC to leverage HPCL's balance sheet, they say.

“The apprehension is that 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 last three years. That is because; HPCL and BPCL have been the two biggest beneficiaries of the free pricing of petrol and diesel,” points out a note from Angel Broking.

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