Saturday, September 5, 2009

[Investors Please Listen] IPO Analysis: OIL INDIA LTD.

About The Company:

Oil India Limited engages in the exploration, production, and transportation of crude oil and natural gas onshore in India and internationally. It also

processes its produced natural gas to extract liquefied petroleum gas. The company involves in the exploration of crude oil and natural gas in Gabon,

Iran, Libya, and Nigeria, as well as exploration blocks in Yemen as part of a consortium. In addition, it offers pipeline construction and related services

to third parties, including pipeline construction, pipeline cathodic protection services, and other specialized pipeline services, such as hot tapping and

line tracking. The company owns and operates a 1432 kilometer long cross country crude oil pipeline for the transportation of crude oil in Southeast

Asia. It also owns 10 crude oil pumping stations and 17 repeater stations in Assam, West Bengal, and Bihar, India. Oil India Limited had estimated

probable crude oil reserves of approximately 539.66 million barrels and independent proved plus probable natural gas reserves of approximately

46.04 billion cubic meters. Further, it provides oil field services, drilling services, geoscientific services, well logging services, engineering services,

reservoir management, and technical services to third parties. The company was incorporated in 1959 and is based in Noida, India.

 

Govt. Disinvestment

India's second-biggest state-run oil producer after ONGC, Oil India will offer 2.64 crore equity shares to the public in its initial offering, while the

government will simultaneously sell 10 per cent of its stake in the company to state refiners. Post-IPO and disinvestment, the government's stake in the

company will decrease from 98.13 per cent to 78.5 per cent. Alongside the IPO, the government will sell 10 per cent of its current holding in OIL to

Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum. IOC will get about five per cent while HPCL and BPCL would take about 2.5 per cent

each. The government has fixed the price band for the much hyped initial public offer (IPO) of Oil India at Rs 950-1,050 a share. The price band was fixed

by a Group of Ministers headed by Finance Minister Pranab Mukherjee. The IPO of the Oil India will be the second state-run firm to hit the market

this year after NHPC and likely to raise Rs 4,507- Rs 4,982 crore from the issue of which Government would earn Rs 1,995-Rs 2,205 crore and the

company would get Rs 2,512 to Rs 2,777 crore respectively.

 

Crisil Ratings: CRISIL has assigned "4/5" (four on five) rating to the proposed initial public offer (IPO) of Oil India Ltd. OIL is a Mini Ratna

public sector undertaking. This grade indicates that the fundamentals of the IPO are above average relative to the other listed equity securities in India.

However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals.

 

Valuation:

OIL is comparable with ONGC in terms of Size and business model. As per the relative valuation the avg. p/e of the Sector is 15.61 and EPS of OIL for

FY09 is at 101.Thus the price for the IPO is fairly priced where as ONGC p/e is trading at 17.66 and EPS at 67.03.The EPS for ONGC is much below

that of the OIL, Thus it would be an investment from long term perspective. EPS is growing at CAGR of 19% approx. Based on Scenario analysis we

going by the conservatives approach considering the EPS growth at 15%.The Projections are given in the table.

 

Conclusion

The demand for Oil & Energy is going to increase leaps and bounds. The dearth of Alternative Energy sources being identified and implemented in

countries like India, the Oil companies are expected to be benefiting if they can generate good business. Moreover, the government has recently given

open freedom to companies to decide the prices. Thus it is expected that Oil is likely to gain significantly in the long run. OIL (Oil India) had cash/cash

equivalents of Rs 283 per share and EPS of 101 in FY 2009.The IPO seems fairly priced.

 

By RR Information Research


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