Business Standard

BPCL: South American Ho

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Niraj Bhatt Mumbai
The company, together with Videocon, is in talks with two Canadian firms for the purchase of EnCana Brasil Petróleo.
 
Bharat Petroleum is expanding its upstream oil exploration activities, at a time when its key oil marketing business has been grappling with surging under-recoveries.

This PSU oil marketing company, via its 100 per cent subsidiary Bharat PetroResources, and Videocon Industries, have entered into an agreement with EnCana Corporation, Canada and 749793 Alberta, Canada, for purchase of shares on a 50:50 basis for Brazil-based EnCana Brasil Petróleo.

This transaction is for interests in 10 deep water offshore exploration blocks in Brazil. According to EnCana, the sale is priced at $165 million (about Rs 670 crore), before closing adjustments, which will mean that BPCL will be investing Rs 335 crore for its 50 per cent stake.

Prior to this deal, BPCL had also taken a 25 per cent stake in a consortium for oil exploration activities for certain blocks in the North Sea and also in East Timor.
 
However, the company's downstream oil marketing business has faced a difficult operating environment due to surging global crude oil prices.
 
Analysts highlight that BPCL, like other oil marketing companies, is currently grappling with under-recoveries to the extent of Rs 4.8 per litre for diesel and Rs 173 per domestic LPG cylinder.
 
Upstream companies such as ONGC share a portion of under-recoveries of oil marketing companies, in addition a cushion for BPCL's margins in the September 2007 quarter is also expected from stronger gross refining margins on a y-o-y basis.
 
Also, PSU oil marketing companies are awaiting receipt of oil bonds from the central government and that is also expected to improve their financial position.
 
In the June 2007 quarter, BPCL's standalone operating profit (excluding other income) was Rs 206 crore as compared with an operating loss of Rs 260.9 crore in the previous year, thanks to strong GRMs on a y-o-y basis. The BPCL stock gained 0.5 per cent to Rs 310 on Thursday.
 
Western India Shipyard: Upswing
 
The share of distressed ship repairing company, Western India Shipyard (WISL), gained 5 per cent after the news that ABG Shipyard was taking a stake. If the scheme of revival and rehabilitation of WISL goes through, ABG Shipyard will acquire 51 per cent in the company.

WISL had a turnover of Rs 53 crore in FY07 with operating profit of Rs 5.36 crore. However, after accounting the interest cost of Rs 15.4 crore and depreciation 10.6 crore, WISL reported a loss of Rs 20.7 crore at the net level. WISL, which has a debt of Rs 250 crore is mainly suffering from the interest burden.

Besides, analysts also suggest that with the promoters holding just 7.8 per cent in the company, there is lack of management interest. Financial institutions hold around 38 per cent in WISL.

According to the ABG management, the company will infuse Rs 25 crore immediately in WISL as a zero interest loan to improve business. The lenders to WISL will bring down their debt to Rs 120-crore levels. The infusion of cash and reduction in debt will provide significant relief from the rising interest burden and thus improve its bottom line.
 
Under the scheme, financial institutions will sell their holdings in WISL to ABG Shipyard. The price at which these shares will be transferred is yet to be determined. But this purchase will benefit both companies.
 
There is enough demand for the ship repairing business, mainly coming from the offshore sector, including drilling rigs. ABG will have access to existing facilities, while the WISL shareholder will benefit from a financially sound owner.
 
Besides, under the ABG management, WISL will also have access to marketing and technical assistance. ABG Shipyard has an order book of Rs 5,560 crore (around seven times its FY07 revenues). And though there will not be any open offer for WISL, the stock is likely to find takers due to the improved outlook.
 
The ABG stock also gained 3.5 per cent and trades at about 15-16 times estimated FY08 earnings.
 
With contributions from Amriteshwar Mathur and Jitendra Gupta

 
 

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First Published: Sep 14 2007 | 12:00 AM IST

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