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OIL – Review + Recommendation – Subscribe

August 28, 2009

Oil India Limited engages in the exploration, production, and transportation of crude oil and natural gas onshore in India and internationally. It is India’s second-biggest state-run oil producer after ONGC.

Business Profile:
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.

Government Disinvestment:
Post-IPO and disinvestment, the government’s stake in the company will decrease from 98.13 per cent to 78.5 per cent. The government has fixed the price band for the hyped initial public offer (IPO) of Oil India at Rs 950-1,050 a share. CRISIL has assigned 4 of 5 Star Rating for OIL India.

Reasons to Invest:
OIL, believes its earnings per share (EPS) and book value are better than ONGC. OIL produces to 10 per cent of the total crude oil produced in the country [ONGC 76%]. Company has the corporate strategy to dilute exploration and production portfolio as well to reduce the geological risks.

OIL India Offer Details:
Bidding Opens 07-09-09
Bidding Closes 10-09-09
Minimum Bid Size – 6 Equity Shares of Cace Value RS 10
Retail Size – not less than 72,13,631 shares [~INR 750 cr]
Fully Diluted Equity after IPO – 240.5 cr
Last Year EPS – Rs 104
NAV Per Share – Rs 438 [pre- equity dilution]

Peer Group Companies – ONGC, Cairn India, Hindustan Oil Exploration.

Financial Reasons to Subscribe to the Issue:
OIL India has recorded a CAGR in PAT of 15% over the past 5 years [Outstanding record in our view]. For Quarter ending June-2009, OIL India has recorded a PAT of Rs 739.6 cr, annualising the same it will yield to Rs 2956 cr PAT on an expanded Equity after IPO of Rs 240 cr thus leading to an EPS of ~ Rs 120 for FY 2010.

OIL India should not find any difficulty in trading at a P/E of 11-12 on conservative basis thus we setting a Target price of Rs 1400 for March-2010.

Additionally, if dividend is maintained at 305%, you will stand to get an yield of 3% on you investment, same as your Savings Bank A/C.

We Recommend Investors to Subscribe to the OIL India IPO Public Offering

This analysis is based on OIL India’s filing of Draft Red Herring Prospectus with the SEBI.

Comments

2 Responses to “OIL – Review + Recommendation – Subscribe”

  1. Credit Report India on September 8th, 2009 10:46 AM

    Brokerage Views for OIL India IPO

    Angel Broking Said – According a 15% discount to ONGC's EV/boe, OIL should trade at 4.4x EV/boe, giving a Fair Value of Rs1,214/share providing decent upside from the current levels.

    Edelweiss Said – Net of cash, OIL trades at 6.8x FY10E EPS, which is at 31% discount to ONGC's FY10E P/E of 9.8x.
    We recommend ‘SUBSCRIBE’ to the IPO for long term investment.

    HDFC Securities Said – Investors can invest in the issue from a medium term perspective.

  2. Anonymous on September 8th, 2009 12:04 PM

    Shankar Sharma's First Global's View on this iPO….

    OIL's consistent track record and strong balance sheet
    reaffirms our view that the company will be able to monetize it future efforts in exploration and production and actively pursue growth opportunities in the global markets as well.
    We recommend Subscribe to OILs IPO.

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