Rosary College of Commerce &
Arts
Navelim, Salcete-Goa
2015-16
Corporate Accounting
MERGER OF INDIAN OIL CORPORATION LTD (IOC)
SUBMITTED TO:
[Link]. RACHEAL GOES
R/MCOM-15-21
SUBMITTED BY:
R/MCOM-15-04
ABSTRACT
The study is contains the analysis of merger Of India Oil Company
with Indo Bright Petroleum limited to form Indian Oil Corporation
Limited.
COMPANY PROFILE
NAMES BEFORE MERGE: INDIAN OIL COMPANY LIMITED
INDO-BRIGHT PETROLEUM
MERGED NAME: INDIAN OIL CORPORATION
INDUSTRY: Oil and Gas sector
JOINT MANAGING DIRECTOR: [Link] Daga
Indian Oil Company Limited (IOC) merged with Indo Bright
Petroleum Limited (IBP) on 2nd May 2007, to form Indian Oil
Corporation Limited
IBP Indo-Burma Petroleum Limited was incorporated in February
1909 in Burma (now known Myanmar). The entire business of the
company was shifted to India after World war-II inflicted destruction
of its properties, and the company was registered in India in the year
1943 under the Indian Companies Act of 1913. Indo- Burma
Petroleum Company was renamed as IBP co. limited in 1983.
It was primarily engaged in the business of storage, distribution and
marketing Petroleum products in India. IBP was also engaged in the
manufacturing of Industrial explosives and cryogenic containers.
IOC Indian Oil Company was incorporated in 1959. Though the
company was listed on the stock exchanges, the ownership was fairly
concentrated with the GOI directly holding 82% of IOCs Share
capital.
IOC has been operating on the downstream segment of the
Hydrocarbon value chain, involving refining and marketing of
petroleum products such as aviation turbine fuel, petrol or motor
spirit, high speed diesel oil, liquefied petroleum gas etc.
IOC is also the largest refiner in the country. IOC holds 58.57% of
IBP stake. IOC also has a 74.5% stake in Bongaigaon Refineries and
52.2% stake in Chennai Petroleum.
PURCHASE CONSIDERATION
Under the revised swap ratio, 110 shares of IOC will be
exchanged for 100 shares of IBP. The earlier swap ratio was 125
to 100.
110 equity shares of Rs 10 each of Indian Oil Corporation
company ('the Transferee Company') as fully paid up for every
100 equity shares of Rs 10 each of IBP Company Ltd ('the
Transferor Company').
REASON FOR MERGER
This is evident from the fact that IBP incurred a loss of Rs 695
million in FY05.
IBP's strong presence in the northern markets would
complement IOC's marketing strengths.
In an attempt to become the least-cost supplier of petroleum
products, state-owned Indian Oil Corporation (IOC) decided to
merge with IBP,
Being a Petro retailer IBP, had sent SOS to the government
warning it would go bankrupt by end the 3 rd Quarter if the
company was not allowed to raise petrol, diesel, LPG and
kerosene prices.
IBP team was forced to sell Petrol at Rs 7.42 pl below the cost
of import, while diesel is underpriced by Rs 5.86 pl. And Rs
11.21 loss/l on sale of kerosene and over Rs 100 on sale of every
LPG cylinder.
RATIO ANALYSIS
A. PROFITABILITY RATIOS
1.
Operating Profit Margin (%)
operating
profit
100
Net sales
Pre Merger
Mar'05
Mar'06
Mar'07
51.07
47.58
44.95
Post Merger
Mar'08
44.15
Mar'09
35.85
Mar'10
41.53
*Operating Profit= Net profit ( Cost of Goods sold + Operating expenses)
OPERATING PROFIT MARGIN(%)
51.07 47.58
44.95 44.15
35.85
41.53
OPERATING PROFIT MARGIN
YEAR
Source: Authors creation
INTERPRETATION: Before merger the firms of the Oil Industry were
forced to sell its petroleum products below the import cost. This was the major
reason for a steady decline of the profits of the company. The company faced a
decline in its Operating Profit Margin in the year 2008-09 because IBP was into
losses before merging, and after merging it had to pay off its losses.
2. Gross Profit Margin (%)
Gross profit
100
Net sales
Pre Merger
Mar'05
Mar'06
Mar'07
Post Merger
Mar'08
Mar'09
Mar'10
6.38
6.00
7.33
6.38
4.30
7.57
GROSS PROFIT RATIO(%)
7.57
7.33
6.38
6.38
4.3
GROSS PROFIT MARGIN
Mar' 2005 Mar' 2006 Mar' 2007 Mar' 2008 Mar' 2009 Mar' 2010
YEAR
Source: Authors creation
INTERPRETATION: During the Pre-merger era the firms of the Oil and
Natural Gas sector were forced to sell its petroleum products below the import
cost. This was the major reason for a steady decline of the Gross profits of the
company. The company faced a decline in its Gross Profit Margin in the year
2008-09 because of highly Uneconomical operation the Industrial Explosive
Plant OF IBP at Korba was closed. IBP was into losses before merging, and
after merging it had to pay off its losses.
Net Profit
3. Net Profit Margin (%) Net Sales 100
Pre Merger
Mar'05
Mar'06
Mar'07
Post Merger
Mar'08
Mar'09
Mar'10
4.35
4.05
5.25
4.49
1.64
5.65
NET PROFIT MARGIN(%)
5.65
5.25
4.35
4.49
4.05
1.64
NET PROFIT MARGIN
YEAR
Source: Authors creation
INTERPRETATION: The Net Profit Margin of the IOC increased in the
year 2006-07 on account of Rs.6326 Crs had been accounted as grants from the
Government of India towards issuance of Special Oil Bonds. It declined in the
year ending March 2009 as it was severely affected by the US recession, which
continued till June 2009.
B. LIQUIDITY RATIOS
Current Assets
1. Current Ratio Current Liabilities
Pre Merger
Mar'08
Mar'09
Mar'10
Post merger
Mar'11
Mar'12
Mar'13
4.35
4.05
5.25
4.49
1.64
5.65
CURRENT RATIO
1.27
1.34
1.24
1.29
1.17
1
CURRENT RATIO
YEAR
Source: Authors creation
INTERPRETATION: Since IBP is a marketing subsidiary of IOC it does
not hold much of current assets. Therefore the Current Ratio after the merger
reduced to 1.17:1 during the Financial Year 2007-08. In addition to that it also
reduced in the year 2008-09 to 1:1 due to the US recession which led to crash of
BSE.
LiquidQuick assets
2. Quick Ratio current liabilities
Pre Merger
Mar'08
Mar'09
Mar'10
Post Merger
Mar'11
Mar'12
Mar'13
Mar'14
1.03
0.82
0.73
1.03
0.9
0.73
0.73
QUICK RATIO
0.31
0.31
0.3
0.25
0.23
0.23
QUICK RAITO
YEAR
Source: Authors creation
INTERPRETATION: Since IBP is a marketing subsidiary of IOC it does
not hold much of quick assets. Therefore the Quick Ratio after the merger
reduced to 0.25:1 during the Financial Year 2007-08. In addition to that it also
reduced in the year 2008-09 to 0.23:1 due to the US recession which led to
crash of BSE.
SHAREHOLDING PATTERN
A. PRE SHAREHOLDING PATTERN
Category of Share Holders
Promoter and Promoter Group
80.35
Mutual Funds
1.87
Financial Institution/ Bank
9.52
Insurance
3.33
Qualified Foreign Investors
0.97
Individuals/ Corporate
0.01
Others
3.95
PRE-MERGER SHAREHOLDING PATTERN OF IOC
Categories
Promoters
9.52
0.97
3.33
Financial Institution/ Bank
0.01
Mutual Funds
3.95
Insurance
Qualified Foreign Investors
1.87
Individuals/ Corporate
Others
80.35
Source: Authors creation
B. POST SHAREHOLDING PATTERN
Category of Share Holders
Promoter and Promoter
Group
Mutual Funds
58.57
Financial Institution/ Bank
o.55
Insurance
10.46
Qualified Foreign Investors
3.89
Individuals/ Corporate
2.36
Others
22.18
1.87
POST-MERGER SHAREHOLDING PATTERN OF IOC
22.18
2.36
3.89
10.46
0.11
0.55
1.87
Source: Authors creation
RETURNS
A. PRE RETURNS
58.57
Promoters
Mutual Funds
Financial Institution/
Bank
State Government
Insurance
Qualified Foreign
Investors
Individuals
Others
PRE-MERGER RETURNS
600
500
400
300
200
100
0
38808388383886938899389303896138991390223905239083 39114 39142
INTERPRETATION: The returns on the common Stock of the
company started declining from April 2006 onwards because it suffered a
net under realisation of Rs 3507.7 Crs due to Non- revision of retail
selling price in line with international prices. Later it increased during the
month of September on account of grants from Government of India
towards issuance of Special Oil Bonds.
B. POST RETURNS
POST-MERGER RETURNS
900
800
700
600
500
400
300
200
100
0
391733920339234392643929539326393563938739417394483947939508
INTERPRETATION: The Investors of IOC had to face lower returns from
April 2007 to August 2007 because an adhoc relief granted by the Government
of India to provide favourable conditions to both the firms on account of its
merger. After the companies merged the returns of newly formed the company,
started giving a slight higher returns to the investors during the period
September 2007- December 2007 due to the exposure of a wider market. Since
the Indian Oil industry was severely affected by the US recession the returns
declined rapidly in January 2008. Later it decreased again because a marketing
subsidiary (IBP) was forced to close one of its units in Korba.
PROGRESS AFTER MERGER
After the merger IOC's market share increased to 61 per cent.
The IOC-IBP combine showed an improvement of 0.9 per cent
in retail petrol sales and 0.5 per cent in retail diesel sales after
the merger.
The benefits from the merger include savings in inter-company
transaction taxes, improvements in funds flow, cost benefits
through infrastructure rationalizing and efficient utilization of
combined manpower.
Indian Oil's dominant position strengthened as it gained
ownership of almost 3,000 more retail outlets and other
marketing assets.
CONCLUSION:
Initially the merged company (IOC) faced a reduced performance as
its subsidiary company had to pay off all its losses which they
incurred during the pre merger period. Later after the US crisis was
over it gradually increased its performance and today IOC is one of
the top most refineries in India.
REFERENCE
[Link]
[Link]
[Link]
[Link]/downloads/Q2Result2007_08.pdf
[Link]/todays-paper/ibpioc-merger-swap-ratio
[Link]/india/IBP-IOC-merger-hiccups-likely-to
[Link]/News/IOC-IBP-retail-merger-by-early-August
[Link]/news/ibpmergerwithioccomplete/198066
[Link]/topic/ibps
