ONGC
Oil and Natural Gas Corporation (ONGC) is entering the primary market on 20th September 2011 with an offer for sale of 42.78 crore equity shares of Rs. 5 each, by the Government of India, at a price to be decided later, through a 100% book building process. The much awaited and twice delayed FPO will constitute 5% of the company's paid-up capital and will mop up around Rs. 11,250 crore for the Govt., based on company's current market cap of about Rs. 2.25 lakh crore.
2% of the offer is reserved for company's ~33,000 employees. Retail and employee discount is being contemplated for the issue which closes on 22nd September for QIB bidders and on 23rd September for retail and HNI investors. Govt's shareholding in the company will drop to 69.14% from the current 74.14%. BRLMs to the issue are JM, Citigroup, DSP Merrill Lynch, HSBC, Morgan Stanley and Nomura.
ONGC, a Maharatna company since 2010, is India's largest oil and gas exploration and production (E&P) company also holding the largest oil and gas reserves (proved) in India. For FY11, on a consolidated basis, it reported sales of Rs. 1,17,615 crore on net profit of Rs. 22,456 crore, resulting in an EPS of Rs. 26.25 for the year. For Q1FY12, the company clocked sales of Rs. 33,912 crore and net profit of Rs. 5,474 crore with EPS of Rs. 6.40.
As of 30th June 2011, company had equity of Rs. 4,278 crore (divided into 856 crore shares of Rs. 5 each) and networth of Rs. 1,20,310 crore, resulting in book value per share of Rs. 140.6. On net cash basis, company enjoys debt-free status.
Besides the 74.14% stake held by Indian Government, as of 30th June 2011, 551 FIIs held 4.84% stake while 383 DIIs held 7.37%. Of the latter, LIC held 3.09% stake. In addition to the institutional investors, IOC and GAIL own significant stakes of 7.69% and 2.40% respectively in the company, leaving very low float of approximately 30.5 crore shares or 3.56% stake in public hands. As of date, company has 5.4 lakh shareholders.
Via the FPO, Govt. has to off-load 42.78 crore equity shares, for which it should aim at receiving subscription from over 16 lakh investors, given the current equity market conditions. Coal India IPO was the only issue where Govt. got application from 16 lakh retail investors in October last year. This daunting task of gathering interest from such a large retail investor community can be achieved with a sweetener of 10% discount for retail investors and employees.
Also, for the FPO to be a success, dust must be cleared from the subsidy-sharing mechanism soon, which will definitely give a huge philip to the institutional demand in the stock.
What is thought-provoking is that the FPO, which will be the first divestment candidate of fiscal 2012 to kick-off the financial year's Rs. 40,000 divestment target, will fall during Pitru Paksha or the fortnight to pay homage to ancestors, which begins from 12th September this year and lasts upto 27th September. Generally, these sixteen days are considered inauspicious in the Indian culture.
Coming onto the pricing for the FPO, an indicative price band between Rs. 230 to Rs. 250 per share, with a 5% discount to retail investors and employees would work well for the offer. Currently, share is trading at Rs. 263 in the secondary market and with net-of-discount price to retail investors of Rs. 238, the issue can look attractive, as share price has potential to scale back to 280 levels, on culmination of the FPO.