State energy explorer Oil India's IPO worth up to $570 million is fairly priced and should leave money on the table for subscribers, analysts said, but some investors may be wary after the last two big Indian listings lagged expectations.

Oil India, the second state-owned firm to go public this year, opens its offering on Monday and has set a price band of 950-1,050 rupees for its shares.

Brokerage CLSA rates Oil India IPO as "subscribe" and has set a 12-month target price of 1,250 rupees on the stock. HDFC Securities also advises investors to subscribe for medium term gains.

"While similar to ONGC in structure, it is better placed on reserve accretion, medium-term crude production growth and longer-term gas production growth; it also has higher net cash levels relative to its size," CLSA analysts Somshankar Sinha and Vikash Jain said in a note.

According to brokerage Sharekhan, based on an enterprise value to proven and probable (2P) reserve multiple, Oil India's valuation at the higher end of the price band stands at $4 per barrel of oil equivalent (BOE) while ONGC trades at EV/2P multiple of $5.4 BOE.

Both are well below average valuations of $7-$8 BOE globally.

Market participants expect a solid investor response, but said subscription levels may lag those seen in the recently concluded Adani Power and NHPC issues, whose muted trading performances hurt the overall sentiment.

The discount of state-run explorers is partially attributed to the government-mandated subsidy sharing burden on upstream companies it controls.

Last month, CRISIL assigned an IPO grade of 4/5 to the issue, indicating "above average fundamentals", citing the company's strong position in the oil and gas exploration and production space.

However, the subsidy and discounting burden imposed on state energy companies could cap investor interest, analysts said.

"OIL's shareholders remain vulnerable to the GoI (government of India) continuing to use its business more as a tool for public policy than as an engine for profit maximisation," CRISIL said in its IPO grade note last month.


The other two major recent IPOs, by Adani Power and NHPC, made disappointing market debuts despite generating heavy oversubscription levels, which could dampen the response for other listing aspirants and lead some to reconsider pricing.

Adani and NHPC both priced at the top of their price bands after being subscribed more than 20 times.

"Oil India is reasonably priced. We will see listing gains but these will not be huge enough," said Ambareesh Baliga, vice-president of Karvy Stock Broking.

"The issue will see a good response, but not on lines of NHPC or Adani, as in those issues investors who invested with high leverage lost a lot of money. So, they may not be as active this time," Baliga added.

Indian firms have raised around $10 billion in share sales so far this year, surpassing full year 2008 volumes, helped by a 60 percent rally in the main BSE index this year.

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