Oil India could fetch better value

Plans to disinvest analysts say firm's balance sheet and prospects better than that of ONGC, its bigger peer

A 24-per cent diesel price rise and the capping of subsidised LPG cylinders ahead of the Oil India disinvestment is expected to fetch better valuation for the government-owned oil and gas producing company. The government, which plans to raise around Rs 3,000 crore through divesting 10 per cent stake in Oil India, has already invited bids from merchant bankers for working out the Offer For Sale (OFS) .

October 4 is the last date for bankers to file expressions of interest. "Three bankers will be selected after two days of presentations on October 16 and 17," said a senior Oil India executive.

"Government shares will be directly placed in the share market. There will be a reserve price and bids will be invited and shares allotted on a pro rata basis," he added. The government's share in Oil India stands at 78.43 per cent. This will come down to 68.43 per cent after the disinvestment.

The issue is being modelled on the lines of the bidding conducted for Oil and Natural Gas Corporation (ONGC). The ONGC public issue had flopped last year. Its subsidy share is an overhang on the scrip. Analysts say Oil India's balance sheet and its prospects of growth are better than ONGC’s, its bigger peer in the sector.

The success of OFS, however, boils down to what price Oil India is willing to sell their shares. "If they command a high premium, it may go the ONGC way. Investors are cognizant of the issues Oil India faces," said an assistant vice-president of research at a domestic securities firm. The executive countered the argument saying the subsidy issue has already been factored in by the market. "If the subsidy overhang goes, the pricing will improve," he said.

Last week, the government decided to sell its stake in four PSUs — Hindustan Copper, Oil India, MMTC and Nalco. This may fetch it around Rs 15,000 crore. The government has proposed to raise Rs 30,000 crore from disinvestment in the current financial year but volatile market conditions have so far prevented it from raising any money. During the last financial year, the government could only raise Rs 14,000 crore against a set target of Rs 40,000 crore.