IPO OF OIL INDIA LTD (OIL)…Upper band Price of Rs 1050 appears fair but there’s not much listing Upsteam for this Upstream Oil PSU

This is a  Scan of the OIL IPO

I like OIL…Rs 1050 (FV Rs 10) Upper band Price appears fair…but I would await Listing before consdering any meaningful exposure

In it’s continuing disinvestment exercise now the Government wants us to explore OIL with it…but at an upper band IPO price of Rs 1050…OIL will raise Rs 2777 crs at this price to largely fund Exploration and Development Activity and Capex for the next two years 

So should you ? The issue closes tomorrow,September 10,2009

Market & Technical Factor that lends support on Listing is the low Floating Stock

Well IOC,HPCL and BPCL are helping out the Government …they will buy an aggregate of 21.40 million shares at IPO Fixed Price from the Government of India …this is 8.91 % of post issue capital…Government will continue to hold 188.60 million shares or 78.43% of the post issue equity of Rs 240.45 million shares…others hold 4 million shares pre issue…The IPO will release a fresh 26.45 million shares…thus you’ll have a floating stock of 30.45 million shares…This low floating stock should support Rs 1050

Fundamental Factors that support Rs 1050

The Government took 30 earnings multiple in NHPC pricing it at Rs 36…that was greedy…For OIL the Earnings Multiple is 10 at the Price of Rs 1050…It earned Rs 2162 crs on an Equity Base of Rs 214 crs….EPS was over Rs 100….Reserves were 9173 crs to give a networth of Rs 9387 crs…..It’s relatively debt free and maintains cash of over Rs 6000 crs…With Q1 profits at Rs 740 crs in FY 10 the networth has now crossed Rs 10000 crs…that’s a updated Book Value of Rs 471…so IPO Price of Rs 1050 is 2.2 times book….. that’s fair…Post IPO the Networth zooms to Rs 12848 crs,with Equity at Rs 240.45 crs and Reserves moving up sharply to cross Rs 12607 crs and give a new Book Value of Rs 534…so the Issue Price is twice book…OIL is already a Bonus Candidate…This IPO enhances this status…so we can expect a Liberal Bonus a year or two down the line surely !….The Market Cap at Rs 1050 will be over Rs 25000 crs and the EV/Proven+Probable Reserves ratio is relatively low at 4 against 5.4 of ONGC and near 13 of Cairn India…though it’s EV/EBITA is over 8 and comparable with Peer Group in India and even overseas 

Then  why am I not so ecstatic for applying in the IPO ?

Technical and Market factors that don’t excite me to apply read more