Oil India IPO and Risk

by pawanyadav on September 4, 2009

Oil India will come out with an initial public offering (IPO) of 26,449,982 equity shares of face value Rs 10 each. Its issue price has been fixed at Rs 950-1050 per equity share and it will raise around Rs 2,512.75-2,777.25 crore. The IPO opens on September 7^th and closes on September 11^th.

Oil India is the country’s second largest state run explorer and produces 3.5 million tons oil annually. It is engaged in exploration, development, production and transportation of crude oil and natural gas onshore in India. Oil India has also been accorded the status of Mini Ratna by the Government of India. Just to keep things in perspective though, ONGC, which is also controlled by the government is ten times the size of Oil India.

CRISIL has graded Oil India 4 out 5, which indicates above average fundamentals.

The IPO is being planned out to issue new shares to the public, but at the same time the government will also sell 10% its own stake to IOC, HPCL, BPCL and IOC.

Oil India has most of its business concentrated domestically, but it is exploring oil and natural gas in Gabon, Libya, Nigeria and Yemen too.

Risk and Competitors:

Volatility of oil prices either it is very high or low crude prices, are also bad for the company. The risk is that when the government sells petrol and kerosene at a discount to international prices to retail consumers, the subsidy is then shared by the government and oil companies and when oil price goes sky-high, the burden of this subsidy becomes really high on oil companies.

Oil India has all of its oil reserves in the Upper Assam basin, which is a maturing resource, and so it is facing decreasing production rates. This means that the need for developing new resources is relatively higher for Oil India, than other companies.

The company has main competition in oil exploration by companies like ONGC, IOCL, GSPCL, GAIL, British Energy, RIL, Cairn Energy and Niko Resources.

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