Oil India Limited IPO Oversubscribed 31 Times
The OIL India IPO that concluded on Thursday, September 10, 2009, was oversubscribed as many as 31 times. The IPO that planned to raise Rs. 2,782 crores received as much as Rs. 86,000 crores. The primary reason for this demand seemed to be due to the lower valuation compared to its rivals ONGC and Cairn India.
The IPO subscription was lapped up more by buying from institutional buyers. The retail investors did not show much interest in this issue probably due to bad experience with other recent issues in the power sector from the Adani Power and NHPC.
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 is the second government company after NHPC to come up with an IPO since the Manmohan Singh led Congress government returned to power a few months ago. The Oil India Limited IPO invited bids in a price band of Rs 950-1,050.
The shares are said to be trading at a prmium of about Rs. 40 in the grey market. This, of course, is unofficial news.
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.
The response to this OIL India IPO was absolutely surprising as most brokers believed that after the recent lukewarm opening of NHPC and Adani Power, people may not be very enthusiastic about another power company IPO. Well, now we all know: they were wrong!
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