Friday, September 11, 2009

Oil India IPO subscribed 31 Times; QIB Over 50 Times

Oil India's initial share sale to raise Rs 2,782 crore received demand for as much as Rs 86,000 crore, as its shares are seen offering profits since its valuation is lower than rivals ONGC and Cairn India.

The 2.65-crore share sale that ended on Thursday was subscribed 31 times, with institutional investors making maximum bids, while retail investors, who were burnt in the past IPOs, such as NHPC and Adani Power, were less enthusiastic. "OIL is offering shares at a valuation that translates into a EV/2P reserves (enterprise value divided by proven and probable reserves) of $4.1 compared to $5.4 for ONGC, $12.8 for Cairn and $7-8 for most international players," said a note by brokerage house HDFC Securities to clients.

For oil companies, the enterprise value to proven and probable reserves are used as a gauge for valuation. For manufacturing companies price-to-earnings multiple is used as a metric. The institutional portion of the issue was subscribed 54 times, the non-institutional (mostly high net worth individuals and some corporates) nearly 11 times, with almost the entire bids coming on the last day, and the retail portion nearly two times. Oil India, the second company from the government stable to raise funds after NHPC since the Manmohan Singh government returned to power triggering reform hopes, invited bids in a price band of Rs 950-1,050.

In unofficial trading, the so-called grey market, shares are trading at a premium of Rs 35- 40, some brokers, who did not want to be identified, said. The date of listing is still not known. "Higher production of oil and gas, going forward, growing accretion to acreage, lower subsidy burden due to soft crude oil prices, high success ratio and operational efficiency, greater use of better technology (eg horizontal well technology), upsides from pipeline and downstream business, upside from likely revision in gas APM (administered price mechanism) prices, better financial and return ratios - all this could mean that the difference in valuation attracted by ONGC and OIL could narrow," the HDFC Securities note said.

Till Wednesday, most brokers were of the opinion that the retail portion may not be fully subscribed since their investments in NHPC and Adani Power have already eroded in value.



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