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Finance Friday: OIL India IPO – Jewel among IPO duds?

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The last few months have seen a lot of new IPO’s hitting the Indian Stock Markets. With the Indian Economy on the growth track and Sensex breaching the 15k level, the perception was that the Investor is ready to buy into the market. This lead to an onslaught of IPO offerings by organization’s looking to raise capital.

But, none of the recently listed IPO’S have had a dream run to speak of. Infact, some of the listed IPO’s are trading even below their listing price.

The question arises, What went wrong when all the pointers looked favourable for another IPO boom time?

OIL India IPO

The answer fundamentally lies in the Investor mindset. The retail investor is still skeptical about investing into the Stock Market. The high volatility in the Stock Markets is keeping the retail investor on the back foot. The healthy rise in the Stock Market has a rather smaller contribution of the retail investor per say, who is the prime target for IPO’s. Moreover, The recent IPO listings were led by the power sector which to a not-so-educated investor like me is complex to understand.

But we do understand OIL. Don’t we ? The name OIL in the IPO made me interested to consider applying for one. My decision seems right now.

State-owned explorer Oil India’s $570 million IPO was subscribed nearly 31 times on Thursday.

The 26.4 million share offering, priced at a discount to peers, was subscribed 30.81 times by 6:00 p.m. (1230 GMT) on the final day, according to the National Stock Exchange’s website.

The portion of the IPO allotted to institutions was oversubscribed more than 50 times, with most bids coming at the higher end of the range of 950 to 1,050 rupees. (Source )

Oil India, which is primarily into exploration, development, production and transportation of crude oil and natural gas onshore in India, is also exploring crude oil and natural gas in Egypt, Gabon, Iran, Libya, Nigeria, Timor Leste and Yemen.

This clearly suggests that OIL India IPO is going to come out as a jewel amidst the recent duds like NHPC and Adani power. Moreover, the positive interest in the Oil India IPO will raise the government’s hope of selling more stakes in the state firms to cut a widening budget deficit.

Now I am not really a market expert, but there were some really visible pointers which made subscribing to Oil India IPO worthwhile:

  • A sector with huge visible demand
  • Strong fundamentals and bright long term growth prospects
  • A better record for discoveries over larger state-run rival Oil and Natural Gas Corp
  • The valuations for Oil India are cheaper than peers
  • A marketing campaign (Print,TV) which was simple,crisp and had a good frequency

I am keeping my fingers crossed for the day it lists on the Exchange now. Even with a weak market, my expectation is that Oil India will list atleast at a modest 15-20% premium. Moreover, with a sector like OIL, it is always a long term play. So, as long as the fundamentals look good and improve consistently I don’t see a reason why it should not be a part of my portfolio.

Do you think Oil India IPO has broken the jinx of recent IPO failures? What are your thoughts on the Oil India IPO ?

[This Finance Friday post has been written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]

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