Indian Oil eyes acquisition, growth to challenge Reliance

By Steve Toloken
Staff Reporter / Asia Bureau Chief

Published: November 4, 2013 2:12 pm ET
Updated: November 4, 2013 2:14 pm ET

Related to this story

Topics Materials, Mergers & Acquisitions, Asia, Materials Suppliers

DÜSSELDORF, GERMANY — Indian Oil Corp. would like to close the gap in plastics production with the country’s domestic market leader, Reliance Industries Ltd., and is looking at both internal expansion and the acquisition of part of Haldia Petrochemicals Ltd. to grow its market share.

IOC has capacity to make 1.25 million metric tons of polyolefins a year, about 18 percent of India’s domestic production, but if it succeeds in acquiring the larger stake in Haldia its market share would rise to about 33 percent, IOC executives said in an interview at Germany’s K fair.

New Delhi-based Indian Oil was making only its second appearance at K, the world’s largest plastics trade show, with a 200-square meter booth. That’s small by the standards of global plastics manufacturers for K but double what the company had at the last K fair in 2010.

IOC, which has 49 percent of India’s petroleum market, is a relative newcomer in chemicals. It said it wants to send a message.

“This is to tell the world that Indian Oil is not only a petroleum company, it is a petrochemical company,” said A.M.K. Sinha, an IOC board member and director of planning and development. “It is important for us to be seen here.”

The acquisition of Calcutta-based Haldia would add 670,000 metric tons of polyethylene and 340,000 tonnes of polypropylene production each year to IOC’s production, said Sinha.

In early October, the government of West Bengal state in India, which owns 40 percent of Haldia, agreed to sell its stake to Indian Oil, according to Indian press reports. Indian Oil already owns just under 9 percent of Haldia.

But the IOC offer price can be matched by India’s Chatterjee Group, which owns 41 percent of Haldia, and has until mid-November to do so. Chatterjee had been trying to block the sale in court.

At K, IOC executives expressed confidence they could conclude the deal successfully: “We are quite optimistic we can work out management control of Haldia,” Sinha said.

Currently, the company has capacity to make 600,000 tonnes of PP, 300,000 tonnes of HDPE and 350,000 tonnes in a “swing” plant capable of making LLDPE or HDPE, all connected to the company’s naphtha cracker in Panipat, India.

It plans its own internal expansion, adding another 680,000 tonnes of PP capacity in a new plant at Paradip to come on stream in the first quarter of 2017.

It’s also bringing on stream in the fourth quarter a 120,000 tonnes per year styrene butadiene rubber facility in Panipat, about 125 km from New Delhi. That plant is a joint venture of IOC, Taiwan’s TSRC Corp. and Japan’s Marubeni Corp., with IOC owning 50 percent.

IOC has pursued a strategy of expanding into polymers to get more value from its Naphtha cracker at Panipat, which opened in 2010 and is India’s largest, with capacity for 857,000 tonnes of ethylene and 650,000 tons of propylene annually.

“Petroleum markets are under tremendous pressure,” Sinha said. “Adding value is a natural hedge against margins going down.”

The company hopes to make up ground with Reliance, which has 70 percent of India’s domestic polymers market, said S. Mitra, executive director of petrochemicals: “The intent is to grow and try to bridge that gap.”

IOC said it plans $5 billion worth of petrochemical investment in the next decade.

Like many analysts of India today, the company said it wants to tap into the large growth potential of the country, even if the current per capita use of plastics is low.

India’s per capita consumption of plastic is six to seven kilograms a year, compared with 66 kg in developed countries like the United States, IOC said in its most recent annual report.

Polymer consumption grew 10 percent in India in 2012, up from eight percent in 2011, even as structural problems in India’s macroeconomy slowed GDP growth to 5 percent, the smallest increase in a decade, IOC said. The weakening rupee also hit India’s economy.

“As far as the macro-Indian economy, the previous few years of GDP growth have not been as good as in 2006-2007 period,” Sinha said. “But the fundamentals remain strong. What we are finding is the growth in plastics is about 10 percent.”

India had a strong monsoon season this year, which is likely to help its agriculture-dependent economy, said Mitra: “India had a good monsoon, so that will lead to more growth next year.”

The company also credited an Indian government decision to raise tariffs on imported plastics from five percent to 7.5 percent as another factor that will boost its profitability.

“The recent increase in customs duty applicable on polymers… is a welcome development for domestic suppliers and is expected to sustain net margins for producers,” IOC said in its most recent annual report, for the year ending March 31.

More than 90 percent of the company’s petrochemical products are sold domestically, and its K show booth was full of products from the Indian factories of global companies using IOC polyolefins. They included washing machine parts for Haier India, a rice container for Tupperware’s India operations and a safety helmet for 3M India.

At K it was showing several new grades of polyolefins it had developed in the last year. IOC is India’s largest company and ranked 83rd on the global Fortune 500 in 2012.

 


Comments

Indian Oil eyes acquisition, growth to challenge Reliance

By Steve Toloken
Staff Reporter / Asia Bureau Chief

Published: November 4, 2013 2:12 pm ET
Updated: November 4, 2013 2:14 pm ET

Post Your Comments


Back to story


More stories

Image

Milacron commits $30 million to investment in India

August 20, 2014 5:42 pm ET

MUMBAI — Cincinnati-based Milacron LLC plans to invest $30 million over the next three years in India. The investments will double capacity at...    More

Image

Ply Gem continues acquisition streak, buying Simonton for $130 million

August 20, 2014 2:33 pm ET

Building materials manufacturer Ply Gem Holdings Inc. will acquire Simonton Windows from Fortune Brands Home & Security in a $130 million deal that...    More

Image

Has the current M&A cycle peaked?

August 20, 2014 11:55 am ET

Plastics M&A veteran Thomas Blaige has called the peak of the current investment cycle.    More

Image

Automakers look under the hood for the next lightweighting opportunities

August 20, 2014 1:06 pm ET

The automotive industry's current favorite target for lightweighting efforts is the powertrain, according to a recent survey.    More

Image

Cooper-Standard JV to focus on Asia

August 20, 2014 10:17 am ET

Cooper Standard Automotive Inc. is forming Cooper Standard Inoac Pte. Ltd. — a joint venture with Inoac Corp. of Japan — to expand the rea...    More

Market Reports

Thermoformed Packaging 2014 Market Review & Outlook North America

This in-depth report analyzes economic and market trends, legislative/regulatory activity impacting supply and demand, business opportunities and threats, materials pricing, manufacturing technology, as well as growth strategies being implemented by thermoformed packaging companies.

Learn more

Pipe, Profile & Tubing Extrusion in North America 2014

U.S. demand for extruded plastics is expected to grow by 3 percent in 2014, with PVC remaining the largest segment.

Plastic pipe will post the strongest gains through 2018, continuing to take market share from competing materials in a range of markets.

Our latest market report provides in-depth analysis of current trends and their financial impact on the pipe, profile and tubing extrusion industry in North America.

Learn more

2014 Injection Molding Industry Report

GROWTH, OPPORTUNITY IN SIGHT FOR INJECTION MOLDERS IN 2014

In the wake of the economic turbulence earlier in this decade, molders today find themselves in much better shape. Molders are gaining a competitive advantage by investing in people, equipment and seeking inroads into new markets on a global scale.

Growth in the injection molding industry is going to be driven by low financing costs and a continued move to reshore some business.

Learn more

Upcoming Plastics News Events

September 10, 2014 - September 12, 2014Plastics Caps & Closures 2014

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

More Events