Essar Oil remains `undervalued' on Indian bourses......

THE Essar group on Thursday announced its plan to raise about $2.5 billion through a public offer on the London Stock Exchange (LSE). The money will be spent on the group’s power, refinery and oil & gas exploration projects.

The issue will be the largest initial public offer in London since 2006.
The Scottish insurer, Standard Life, raised $4.5 billion in July that year. In the Indian context, the Essar equity offer to London-based investors will be the biggest after the Anil Agarwal-led Vedanta Resources raised 700 million pounds in 2003.
Essar Energy, a holding company formed by combining the group’s entire oil, gas and power businesses, will offer 20 to 25 per cent stake to institutional investors in London, Prashant Ruia, the company’s vice-chairman, said over a conference call from London on Thursday.
Essar has initiated the process of seeking regulatory clearances that will take a few weeks. The company will begin a road show on April 19. Financial Chronicle reported on March 8 that the conglomerate plans to raise funds through an overseas listing. LSE said it would be the biggest Indian IPO in London. “Essar Energy’s intended float here will give investors the chance to invest in India’s strong projected growth through a leading energy company listed on the world’s most international stock exchange,” Xavier Rolet, chief executive officer of the LSE group, said.
Essar Energy’s objective is to cash in on the increasing energy demand of through its two subsidiaries: Essar Power and Essar Oil.
Essar Power will be a 100 per cent subsidiary owned by Essar Energy. The group will continue to operate its oil and gas business through Essar Oil which will continue to be listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Essar Oil, with a market value of $4.1 billion, has 11.42 per cent stock with investors.


"It is our goal that a successful completion of this transaction will provide investors with a unique, London-listed, liquid vehicle to access the Indian growth story," Ruia said.
Analysts told Financial Chronicle Essar Oil was constantly undervalued on the Indian bourses. "Its upstream business is not able to attract many investors," said a Mumbai-based investment banker on condition of anonymity. Essar has acquired a coal bed methane block in India.
This is a new phenomenon in India and investors are not keen to put in their money. “This is not a problem in London,” he said.


“The LSE listing will help the group raise funds at better valuations,” said Anil Chopra, group chief executive officer of Bajaj Capital. In addition, stock manipulation was comparatively less on foreign bourses, he said.
“The group is looking for a significant capital expansion and wants to monetise these projects,” said Saeed
Jaffrey, analyst with Ambit Capital Research.
Essar Energy is incorporated in the UK. It has its registered office in London and head office in Mauritius. Ravi Ruia, vicechairman of the Essar group, has already shifted to London.
Ravi will head the global operations of the group. Essar is also engaged in discussions to acquire three refineries owned by Royal Dutch Shell.
Essar Energy has revenues of $5.6 billion and possesses assets worth $8 billion. It reported earnings before interest, taxes, depreciation, and amortisation of $307 million. The company has debts of $3 billion. J P Morgan Cazenove and Deutsche Bank are advising the company of the offer. ( Asset $8 bn and Debt is $3 bn....isn't that juicy?that is great....Essar Oil going at throw away price....)
“At the time of the offer, we will have already invested over $2 billion in Essar Energy, and the group remains fully committed to the future success and ongoing growth of Essar Energy,” said Ravi Ruia, chairman of Essar Energy.
The group intends to use the IPO money to expand its installed power capacity to 11,470 mw. Essar Energy’s power expansion projects are divided into two phases. The six power projects in phase I have an expected total installed capacity of 4,880 mw and be operational between by 2012. In the second phase, the company wants to add 5,370 mw, which will be operational in 2013 and 2014.
Essar is also currently expanding the refining capacity at Vadinar to 18 million tonnes. The new capacity will be ready by next March.It will then add a new refinery train with a capacity of 18 million tonnes.
The Essar Oil scrip took a 3.23 per cent leap on Thursday on BSE and closed at Rs 150.40. The stock has advanced 17 per cent in the past year.
My Comments:
I recomended Essar Oil to someone in a reply....and even wrote once or twice on front page that Essar Oil is a buy and looks cheap.....
Someone was assking me about the promoters Ruia's credential but I said we never know when the  mind changes......and when market see value and growth then they forget who is the promoters....
If someone can recall  Crompton Greaves Ltd ...which was a dead Co which belonged to Thapar Gr some 5-6 yrs back ....with huge accumalated losses and no one was ready to touch it.But as soon as the management started restructuring it and market started believing that the growth is for real and if they do things well then there can be a big improvement in performance, it forget who the manegement was .....I remember that Crompton Greaves was below 10-20 and that too 10 paidup and now even in down market , means we have not touched 21k....it is Rs 268 and 2 paidup,means Rs 1340....10 paidup.......that is why I have always said , not to put too much importance on management.....No one was ready to bet on Thapars and see what happened......
So same can happen with Ruias......don't discard anyone.....
Now this article vindicates my call on Essar Oil......It is a BUY.....to reap multibaggers returns in years to come.....
But as usual ,DD is must before investing........