ONGC

Submitted by:
Prince
Abhinaw
Sanyam
 DISTRIBUTION/
EXPLORATION REFINERIES MARKETING/R
ETAILING
 HPCL
ONGC

• largest Lube • Crude oil price

• largest crude oil • limited market
producer share growth refinery • Gov innervations
• GovShare • Distribution • Large Distribution
channel and RetailsChain

STRENGTH WEAKNESS STRENGTH WEAKNESS

OPPORTUNITY THREADS OPPORTUNITY THREADS

• Fast demand • Competitor • Highdemands • Competitor

• Natural gas • Renewal energy • Naturalgas • Renewal energy
Market demands
• Government :
• Holding company mechanism:

• Not disinvestment:
• ONGC:
• Related party transaction :

• Vertical integration:
• Line stretching :

Upstream Downstream
Being a mere oil and gas producer Oil refining and fuel retailing business.

• Risk Management :
 cut on various managing
expenses
proper utilization of financial
resources

• HPCL would make ONGC the third

largest refiner in the country
 Net gains through synergies Efficiency Theory

Merger benefits bidder’s Wealth transfer from target’s Monopoly Theory

shareholders customers
Merger as a rational choice

Wealth transfer from target’s Raider Theory

shareholders

Net gains through private Valuation Theory

information

Merger benefits bidder’s managers Empire-building Theory

Merger as a process outcome Process Theory

Merger as a macroeconomic phenomenon Disturbance Theory

 ,,. -
.

..
ROEs can be greater than 150bps higher in a post-deal scenario. ONGC’s FY18E ROE stands at
10% while HPCL’s FY18E ROE is higher at 30%. Consequently, the acquisition of HPCL will
improve ONGC’s returns profile.
The acquisition is expected to be net positive for ONGC on account of reduction in earnings
volatility and valuation upside of 17% over our base estimate of Rs220/share. However, leverage
will increase to 0.3x from 0.2x at present. For HPCL, its valuation can remain under pressure
until further clarity emerges on ONGC’s role post the merger.
 Govtplans to transfer majority sha.re
holdlng :Ine1ther HPCl or B ·PiL. tu ONGC
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-supply r Sing:SU pply 2
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sl ow dow n .an d
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92

87 ...
Oil g l u t
. -1

82- - - - - - - - - - - - - - - - - - - - - - ·- - - - - - - - - - - - - - - - - - - - - - - - - - -2
2004 2005 2006 2007 2008 -
2009 2010 20 1 2 2013 2014 2015
201
0 i l s u p p l y (l'eft ,a xis ')
1
--- Oil dle1m ,and ( l e f t axis)1

I m p l i e d st o ck c h a n g e (r :mg h taxis}i
No te: The oil in t he figure com, p ,ises crude oil co ndensat,es, NGLs and oii f r o m nonco nvent eo nal and o t h e·rs o u r c e s of supply.
Source: En e·rgyIn f o r m at io n Adm in ist r at:io nJune 201 6.