OIL India IPO at Rs 1,200-1,450

Higher than the market expectations, the government plans to fix the price band of Oil India’s proposed initial public offer at Rs 1,200-1,450 per share. The company will raise up to Rs 3,500 crore through the IPO by selling 12% of its equity. Looking at the public response of NHPC issue, it appears that faith on Government based companies among investor is very strong. In addition, the government is expected to mop up around Rs 3,000 crore through divesting 10% of its stake in the oil explorer to three government-run oil marketing firms. On the expanded equity base after the IPO, the market value of OIL India will be between Rs 29,000 crore and Rs 35,000 crore.

Though the government is not giving its shares through the public issues as it had done in the case of NHPC, it will gain substantially from the pricing of the IPO. A high IPO price will offer it higher earnings when it sells its 10% stake in OIL to three oil-marketing companies — Indian Oil (5%), Hindustan Petroleum (2.5%) and Bharat Petroleum (2.5%).

The PSU concluded a series of roadshows in overseas markets on Monday. A final decision on price band will be taken by the empowered group of ministers scheduled to meet shortly. The IPO is supposed to open on September 7.

After the completion of the OIL issue, the government is expected to raise over Rs 5,000 crore, including Rs 2,000 crore through sale of NHPC shares, in the current year, much beyond the disinvestment target of Rs 1,120 crore mentioned in the Budget 2009-10. Last financial year, Oil India reported core earnings or profit before depreciation, interest, tax and amortisation of Rs 3,722 crore on a turnover of Rs 7,241 crore. OIL is a premier Indian national oil company engaged in the business of exploration, development and production of crude oil and natural gas, transportation of crude oil and production of LPG. OIL is mainly engaged in exploration and production of crude oil and gas in north-eastern states. The North-East accounts for its entire crude oil production and majority of gas output. Rajasthan is the other producing area of OIL that contributes 10% of its total gas production.