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IBP enterprise value seen at Rs 50 billion

Aniek Paul & Sambit Saha

The enterprise value of IBP Co Ltd, 33 per cent of which is being divested by the government, could be as high as Rs 50 billion, according to initial estimates of the company. Disclosing this, a key IBP official involved in the divestment process said, "The petroleum ministry expects the sale of stake to yield well over Rs 10 billion."

The IBP official said evaluation of the company's financials are underway. The estimate of Rs 50 billion enterprise value is based on the discounted earnings model, calculated at the internationally prevalent petroleum marketing margin of $5 per barrel.

With the IBP stock quoting at around Rs 300 currently, the company's market capitalisation is close to Rs 6.80 billion. For the 33 per cent stake to yield well over Rs 10 billion, the divestment will have to take place at a minimum of Rs 1,400 per share.

Nandini Chopra, associate director of KPMG, who is working on IBP's divestment for one of the bidders, said, "The significant component of IBP's valuation would be the premium for the ready access it offers to 1,700 retail outlets nationwide."

"While for the multinational companies, it is a question of setting foot in India and gaining a dominating presence right away, for the public sector undertakings, it is a question of keeping competition away. Anyhow, the presence of a large number of suitors could help IBP earn a better premium," Chopra said.

According to the IBP official, the company's financials do not reflect its true earning potential. The withdrawal of administered pricing mechanism would lead to better margins, and if the company managed to retire its Rs 6.20 billion debt, its interest cost of Rs 1 billion would add to the bottomline.

IBP has already initiated the process of retiring its debt. The official said the company would be made debt-free before the divestment was completed by September. The company is set to receive about Rs 4 billion from the oil pool account due to hike in price of petroleum products. This amount would be used to retire debt.

The government was likely to pay the amount by the end of July, before bidding starts, the official said.

IBP has already divested its 19 per cent stake in Numaligarh Refineries Ltd, and recovered its investment of Rs 1.72 billion. The company plans to press for another Rs 1 billion as interest on it.

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