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ICICI Securities Report
Retailer 7-Eleven is set to acquire retail network of Marathon Petroleum Corporation in the U.S. for $21 billion; the deal valuation is 13.3-16.8 times CY19-CY18 enterprise value/Ebitda.
In the midst of a tough year, oil major British Petroleum Company invested $1 billion in India to take 49% equity in transportation fuels marketing joint venture.
India, the world's largest growth market for oil, has finally got its act together in auto fuel marketing; since CY19, oil marketing companies net auto fuel marketing margin is sharply higher than in CY15-CY18 and 18-20% higher than that of MPC in the U.S.
There is a case for higher multiple for auto fuel marketing Ebitda of OMCs, but Indian Oil Corporation Ltd. and Hindustan Petroleum Corporation Ltd. are trading at 0.8-0.9 times FY21E price to book value; probably genuine concern on medium term gross refining margin outlook and fear of auto fuels getting subsidised like in FY06-FY14 has led to derating.
Government of India should consider hiving off retail outlet network of HPCL and IOC into subsidiaries, and inducting large domestic or global retailers as partners.
This may help put to rest the ghost of auto fuels getting subsidised, unlock full potential of retail network by generating sizable Ebitda from merchandise sales like MPC and re-rate OMCs.
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