Sep 7, 2009

OIL IPO: Should I Subscribe?

Oil India Ltd. (OIL), the second largest oil and gas company in India, opened its initial public offering (IPO) of 26.45 lakh equity shares of face value Rs 10 each for subscription today (7th September, 2009). The issue price for the IPO has been fixed at Rs 950-1050 per equity share and it will raise around Rs 2,512 - Rs 2,777 crore.

The question that the investors are having in their minds is that should one subscribe to the issue or not.

While most experts say 'subscribe', many of them are advicing the investors to stay away from the issue.Moreover, those who advice to subscribe believe that this will be a long-term bet.

You are advised to subscribe to the issue for listing gains as well as with long term perspective. OIL is currently available at a discount to ONGC's current market price. Experts see Rs 1,200 a share on listing day though the primary market maybe affected a bit after Adani Power and NHPC slipping below their issue price.

We will probably get a good response on Oil India and the company looks reasonably well set given the kind of oil wells that they have and the kind of production activity that they?re carrying out and are likely to carry out in coming quarters.

Importantly after this IPO they would have about Rs 9,000 crore worth of cash in the books. Interestingly one will have to watch as to how they will deploy this cash in further production activities. So from that perspective the company looks reasonably good from an investment point of view.

In contrast to the above advise, some experts are rather guiding the investors to buy ONGC instead of Oil India. On of the leading investment advisors says, "We are not convinced even at the lower band of Rs 950 per share, but those who are 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."

Another invesmtent consultancy says, "One should buy the stock if one is very patient but for the average investor, it was probably an avoided."



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