Last Updated : Jan 31, 2013 05:45 PM IST | Source: CNBC-TV18

Experts differ on Oil India's OFS floor price

Oil India offer for sale (OFS) floor price, is set at Rs 510 per share, at a discount of 5.6 percent to the current market price. The company will offer 6 crore shares and the auction kicks off tomorrow. The government will raise around Rs 3,000 crore via OFS route.

Oil India offer for sale (OFS) floor price, is set at Rs 510 per share, at a discount of 5.6 percent to the current market price. The company will offer 6 crore shares and the auction kicks off tomorrow. The government will raise around Rs 3,000 crore via OFS route.

Prithvi Haldea, CMD, Prime Database and SP Tulsian share their on the OFS issue.

Below is the edited transcript of the intxerview .

Q: The reserve price carrying a discount of 5.6 percent is that good enough?

Haldea: Given the volatility in the markets it may not be good enough. There has been steep fall in many PSU prices in the last few months, I don’t think 5 percent is a game changer or will see flood of investors. Some QIBs, government institution and mutual funds limited participation. However, the discount is not very exciting. I am concerned that there is no effort at all to reach out to retail investors. There has to be reservation in offer for sale (OFS) also for retail. Whatever is the reserve price one can get a discount and do a retail offering of at least 25 percent of the OFS size.

Q: What kind of a discount would you have liked to seen? How big a discount should it have been?

Haldea: I am against the whole system of open auction. These are all listed stocks. Enough price discovery is taking place and there are institutions who want large quantities and do not want to bid in an open auction and always tend to converge on a single price or a price close enough to the reserve price. I think closed auction should have been followed which would result in much better demand and higher realization. 

In open auction we have seen that the price finally of the bid converges around the reserve price. What is so sacrosanct about today's price? Today’s price could be impacted by a large number of factors including operators and therefore I think any benchmarking price to a current market price is not a very good way of going forward.

Q: After the Oil India OFS issue, another big one coming in. That is of course the 10 percent OFS issue of NTPC. Government is hoping to rake in Rs 12,000-13,000 crore from this issue. Do you think the two issues are too close to each other?

Haldea: I do not think that liquidity is a problem. There is enough money in the market, both institutional and retail to come into good stocks. PSU stocks generally are deter of the thousands of stocks which are listed and therefore there are little concerns about the quality of the company.

Appetite exists if you get the pricing right. To give a discount to institutional investors will create a lot of hue and cry and therefore significant discount should be given to anonymous bid investors, thereby spread the holdings, get people to invest back in the equity market and there cannot be any question in case you allot to small investors across the country. Put a cap of Rs 100,000, give a 15 percent discount to the current price and there would be a huge queue.

So if one is really keen to a large investor base and not being always dependent about fund institutions in some cases the government institutions to bail you out, I think going forward you have to relook at the strategy of disinvestment.

Q: Is it in and around the price that you were expecting to see?

Tulsian: I had given a price of Rs 520 and at that price, the government would have been a little adventurous but since government wanted to see the process goes through smoothly, they have taken a cautious view and has set it at Rs 510.

Since the floor price has been set at Rs 510, I am expecting the response to come upto Rs 520 or so.

Q: Do you see enough appetite at this level itself or do you expect hiccups because it hasn't come in at the price that you were expecting?

Tulsian: No, I see a strong appetite for that. If you see about 6 crore shares have been put on the block and the value works out at about Rs 3,000 crore. I don't think that there is any kind of problem in having that kind of mobilization. I don't think that Life Insurance Corporation of India (LIC) or the domestic institutions will really have to fallback to subscribe this. I see appetite coming in especially from the overseas investors.

Q: We spoke with the management earlier in the day. They did come out and say going forward their subsidy burden, their under-recoveries all of them would come down next year onwards. Do you think any concerns remain regarding this stock?

Tulsian: Those concerns will always remain and they are known to the public or maybe to the investors those who have been taking a longer term view. But if you really see the process having initiated by the government maybe in terms of the staggered diesel price hike, cutting down on the subsidy. They are also talking of the export parity prices for calculating the subsidy for the oil marketing companies (OMCs). All these things indicate that government is determined to cut the subsidy burden. If that happens, obviously the subsidy sharing ratio is going to get reduced.

So, the future is definitely going to be better for them and not worse from hereon. That is giving a good confidence and solace to the investors that one can take a call from a longer term point of view on this. Taking the call in the upstream companies seems to be more rewarding than taking the call in the OMCs.

Q: So you would use this as an opportunity to buy into the stock now that you have more clarity on what the floor price is?

Tulsian: Yes, definitely. That is the advice for all including the retail investors; subscribe to the share at the floor price of Rs 510 and to go as high as Rs 520 or so.

First Published on Jan 31, 2013 05:43 pm