OIL India: This Oil is expensive

Oil India is entering the Capital market on 7^th September 09 with a public issue of 2.65 crore equity shares of Rs. 10 each, in the band of Rs. 950 to Rs.1,050 per share.

The company can very well be compared with ONGC, as, it is about 10% of ONGC, in terms of level of operations and activity, while, almost at par on financial parameters. Let us have a look to the financials of both the companies as at 31-03-09: -

Rupees / Crores

	ONGC	Oil India
Sales	1,05,257	8,138
PAT	19,795	2,162
EPS (Rs.)	93	101
Book Value (Rs.)	428	436
Equity	2,139	214
Net Worth	91,573	9,331
Dividend (Rs.)	32.00	30.50
Subsidy Share	28,225	3,023
Debt Equity	Debt Free	Debt Free

So, if someone is deciding to buy share of Oil India, infact, it is mini ONGC being bought. Post IPO, equity will rise to Rs. 240 crores, with Government of India stake falling at 78.50% against 74%in ONGC. So even on this count, it remains, almost at the same levels.

It is an accepted fact of the market, while valuing companies in the same sector, with same pedigree, smaller companies have atleast 15% discount to the bigger ones. Also, in the case of IPO, atleast 10% discount needs to be given, over the expected listing price, to prospective investors.

Since ONGC is now ruling at Rs. 1,185, a discount of 15% over this, gives a secondary market valuation of Rs. 1,000 per share. A further discount of 10% on this, justifies a price of Rs. 900 per share in IPO. Since the band of the share has been fixed at Rs. 950 to Rs. 1,050 per share, even accepting lower band of Rs. 950, based on these presumptions, would be difficult to accept.

NHPC, another PSU IPO, has also recently disappointed giving not much profit to retail investors and losses to HNIs. At that time also, we have said that the government has become greedy by having stiff pricing and the same trend looks to continue for this IPO as well. NHPC having issued shares at 36 is now ruling at 37. It may be worst for Oil India.

Really speaking, though we are not convinced even at the lower band of Rs. 950 per share, but those who are to keen to go for it, should contemplate applying at the lower band. It is infact worth and advisable to buy ONGC from the secondary market, instead of going in for this IPO. To justify the pricing of this IPO, share price of ONGC has to move up from its present level of Rs. 1,185. So why not bank on the leader and giant instead of this tiny and regional player.

Jindal Cotex: Say No Thanks

Jindal Cotex is entering the capital markets on 27th August 09, with a public issue of 1.25 crore equity shares of Rs. 10 each, in the band of Rs. 70 to Rs. 75 per share. Promoters are subscribing to 12.04 lakh shares, while 107.50 lakh shares are offered to the public.

One must admire the courage of the promoters to come out with an IPO in the band of Rs. 70 to Rs. 75, against the book value per share of Rs. 23.10, as on 30-06-09 and at a PE multiple of 21.68 times, at the upper end of the price band. There are over 10 similar companies available at PBV of 0.50 times and at a PE of close to 5 times. For example, SEL manufacturing having book value of Rs. 184 is ruling at Rs. 70. This is inspite of the company having posted an EPS of Rs. 33.50 for FY09 and Rs. 12 in quarter ending June 09. SEL also has sizeable presence having 4 garmenting units and 1 spinning and knitting units with annual sale of Rs. 605 crores for FY09. SEL has 74,256 spindles for cotton yarn, 7,050 TPA of knitted fabrics, 3,000 TPA of fabrics processing and dyeing and 7.50 million pieces per annum of garments. That means, this company is available at a PBV of 0.38 times and PE multiple of 2 times. There are over 10 such companies available in this range of valuations.

Books of the company are quite leveraged with debt of close to Rs. 55 crores, on net worth of Rs. 29 crores, as at 30-06-09. The proposed project cost of Rs. 216 crores is financed by term loan of Rs. 91 crores and proposed IPO of Rs. 90 crores, thus leaving a gap of Rs. 36 crores, in addition to public issue expenses.

Such companies come out with IPO mainly to play in the stock market, as it is obvious that no sane investor would be willing to subscribe to it, when so many lucrative ideas are available in the secondary market. So the issue is for, of and by the promoters, ab-initio. Maybe, effort shall be made by them to offload this IPO in the secondary market, by indulging into market manipulations and operations. This kind of movement, we have been witnessing in the share price of about 8 -10 companies. Promoters of this company seem to have inspired by those companies.

A clear advice to the public – remain away from the issue and don’t be part of this weak and unviable project.