Oil India Limited
Attractively price, Subscribe
Oil India Limited, the second largest exploration company in the country, will open its IPO on 7th September offering 26.4mn shares (11% of diluted equity) to the public in the price range of Rs.950-1050 per share. Simultaneously Government of India will also sell 10% of its stake to three OMCs (IOC – 10%, HPCL and BPCL 5% each) at the price arrived through book building process. At Rs.1050, GOI will raise Rs.22.3bn. We believe the IPO is attractively priced based on EV/2P reserves (2P reserves are Proven and Probable reserves) when compared to ONGC. Historically the company has maintained Reserve Replacement Ratio (RRR) above 1.5x which demonstrates the successful track record in its exploration activity. Further, with ramping up its exploration activity during FY10-11 we expect further accretion of reserves from few of its exploration blocks. At the higher end of the price band (i.e Rs.1050 per share), the stock would trade at EV/2P of US$3.8 per bbl as compared to US$5 per bbl of ONGC. We believe the valuation of Oil India Limited at steep discount to ONGC and are recommending SUBSCRIBE rating.
Historically, OIL exploration success ratio has been very high. Its RRR has been consistently above 1.5x in the last five years. The company is also looking at ramping up its exploration activity and is targeting capex of ~Rs.22bn p.a over the next two years. With few prospective blocks at KG Basin and Rajasthan further accretion to reserves cannot be ruled out.
OIL currently has operational blocks at Assam and Rajasthan, Assam accounting for ~90% of its production. Further the company has acquired 24 blocks under NELP out of which in 12 blocks it is the operator. For its international operations the company has signed MOU with IOC and has acquired blocks in Nigeria, Yemen, Egypt and Iran.
By Emkay Shares
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