Comments on Shyam's Column: Why it may be a good idea to apply for Oil India L...

jatin - hi! glad that you are implementing the mes...

2009-09-14T20:03:25.627+05:30

jatin - hi! glad that you are implementing the message from the lecture already. does that mean I was so convincing? anyways, I will take the credit for it. abt OIL India - the question is will the stock become cheaper? this is a fundamental question that every value investor needs to address whenever he buys a stock. I guess one never knows and the best way to handle it is to buy in lots on the way down. no one wants to entirely miss the opportunity to buy a cheap stock, by waiting for it to get cheaper. but before one declares a stock cheap in the first place, we need to be convinced that it's cheap by atleast 25% compared to a CONSERVATIVE estimate of fair market value.

Hi Shyam Sir, This is Jatin Jain from IFMR. F...

2009-09-11T00:19:01.135+05:30

Hi Shyam Sir,

This is Jatin Jain from IFMR. Firstly it was nice attending your session. You showed me a new thought process to investing.

Talking about OIL IPO, accepted the fact the OIL is a good bet at current levels. In driving the share prices sentiments also play an important role and seeing the current sentiment for the IPO market, one can expect a lack luster listing for OIL.
Hence one can expect to make an entry at lower levels.
The response to the IPO has also been a lack luster from the retail category.
Seeing the current sentiment for the IPO market would you still advocate to invest in IPO and block your money till listing or wait for the listing to invest.
This reply is just to understand your strategy after the opening of IPO, nothing against your article.

Once again it was really nice attending your lecture. I have already started looking out for companies with high ROC (where can I get the consolidated list of companies with high ROC???).
We hope to see you soon at IFMR.

Regards,
Jatin Jain
IFMR

Hi Shyam, As you said rightly; I was stunned to s...

2009-09-06T15:53:39.209+05:30

Hi Shyam,

As you said rightly; I was stunned to see an article from you vouching for an IPO- rare worthy! ;-)Also just to add to your points- i felt the management also sincere and committed for the growth of the company (saw an interview of Mr Borah with Udayan in CNBC TV18); which I thought is a key ingredient besides Business & valuation.

On a different note; could you write an article on 'Insurance'(life)- just to simplify the subject. Why I am saying so is because many of us (including me) use the premium paid for rebate under sec 80C and as an investment tool(money back kinds) which actually helps the agent- as they get more commission on them rather than the term insurance.

Thanks once again for the splendid article on OIL...reminds me to read the book - A thousand barrels a second (by Peter Tertzakian)

Srikant

I have a slightly different argument with my limit...

2009-09-05T10:55:41.002+05:30

I have a slightly different argument with my limited financial knowledge.

ONGC is trading at a PE of 15.15
OIL is available at a PE of 10.4 at the cut-off price

Let's take the same arguments as presented in premiuminvestments.

IPO of a smaller company = Listed company * 0.85 * 0.9

This will put OIL's fair PE = 11.6

Given OIL's offered PE of 10.4, it is available at a discount.

Any thoughts or issues in this reasoning?

Anand

Satheesh - Mr. Tulsian who supposedly runs the web...

2009-09-02T20:26:01.916+05:30

Satheesh - Mr. Tulsian who supposedly runs the website obviously does not know that when you are comparing an IPO company with listed one, you have to take the post money ratios for the former. Which means book value per share of OIL India will be around Rs 500 post IPO and not Rs. 436 as listed.

Hi shyam sir i am satheesh.Below content is taken ...

2009-09-02T10:23:35.972+05:30

Hi shyam sir i am satheesh.Below content is taken from premiuminvestments.in.
First dont mistake me.Just i want to know what is wrong in the below content or argument (for academic purpose).Waiting for ur reply

Oil India is entering the Capital market on 7th September 09 with a public issue of 2.65 crore equity shares of Rs. 10 each, in the band of Rs. 950 to Rs.1,050 per share.

The company can very well be compared with ONGC, as, it is about 10% of ONGC, in terms of level of operations and activity, while, almost at par on financial parameters. Let us have a look to the financials of both the companies as at 31-03-09: -

Rupees / Crores

ONGC

Oil India

Sales

1,05,257

8,138

PAT

19,795

2,162

EPS (Rs.)

93

101

Book Value (Rs.)

428

436

Equity

2,139

214

Net Worth

91,573

9,331

Dividend (Rs.)

32.00

30.50

Subsidy Share

28,225

3,023

Debt Equity

Debt Free

Debt Free

So, if someone is deciding to buy share of Oil India, infact, it is mini ONGC being bought. Post IPO, equity will rise to Rs. 240 crores, with Government of India stake falling at 78.50% against 74%in ONGC. So even on this count, it remains, almost at the same levels.

It is an accepted fact of the market, while valuing companies in the same sector, with same pedigree, smaller companies have atleast 15% discount to the bigger ones. Also, in the case of IPO, atleast 10% discount needs to be given, over the expected listing price, to prospective investors.

Since ONGC is now ruling at Rs. 1,185, a discount of 15% over this, gives a secondary market valuation of Rs. 1,000 per share. A further discount of 10% on this, justifies a price of Rs. 900 per share in IPO. Since the band of the share has been fixed at Rs. 950 to Rs. 1,050 per share, even accepting lower band of Rs. 950, based on these presumptions, would be difficult to accept.

NHPC, another PSU IPO, has also recently disappointed giving not much profit to retail investors and losses to HNIs. At that time also, we have said that the government has become greedy by having stiff pricing and the same trend looks to continue for this IPO as well. NHPC having issued shares at 36 is now ruling at 37. It may be worst for Oil India.

Really speaking, though we are not convinced even at the lower band of Rs. 950 per share, but those who are to 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.

Karthik - interesting piece of info (icing on cake...

2009-09-01T21:20:06.118+05:30

Karthik - interesting piece of info (icing on cake)
Mitran :)
Sachin - personally...i feel power companies have such low ROE that they need to be available at or below 'book value' to be considered attractive investments. secondly, our objective in the case of OIL is stable above-average long term returns and not immediate listing gains. the philosophy of this blog esp. when it comes to stock investing is that over the short-term the share price (and so the index) is a voting machine (and hence unpredictable) but over the long term it's a weighing machine that favours fundamentally good companies. The idea is to use the short term aberrations in price to lock in long term returns. 2.1 times book value is cheap valuation of OIL...so any price that is lower can only make the stock cheaper and therefore a better buy...the question is will it get cheaper. i dont know! if you think it'll - may be it helps to set aside some cash for additional purchases.
p.s. btw why are you so concerned about locking money for merely 1 month? hope you are not borrowing money to apply.

Do you thinks after looking at the fate of Adani P...

2009-09-01T20:17:24.332+05:30

Do you thinks after looking at the fate of Adani Power and NHPC (both good companies) IPO performed poorly, not upto the mark as per expectations, Oil India will also perform in the same range. Max listing price will be +/- 5% ?

So instead of blocking 1 lacs for one month to get the shares worth 20 K, isnt it good idea to wait till listing and purchase OIL India shares from secondary market ?
Pls respond .
Sachin

Hi Shyam, Good Post.. there is one more aspect to...

2009-08-28T11:28:10.152+05:30

Hi Shyam,

Good Post.. there is one more aspect to OIL.. Like PGCIL, OIL is currently running fiber along its oil pipelines..They lease out the excess bandwidth. This will be prove to be steady additonal revenue stream with high bottom line as they are the only ones to have fiber running in the Northeast.