Friday, April 9, 2010

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 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 reap multibaggers returns in years to come.....
But as usual ,DD is must before investing........


  1. Hi Rajeev,
    once again excellent explanatory post on ESSAR oil.
    But off late, I am seeing, its happening man!You recommend a scrip here and the second day or few days its in UC. THATS EXCELLENT MEANS WOW!
    Ok. I am here to ask your suggestion on one scrip.

    Recently came across a 'A Compendium On The Top 400 Small Cap Companies' by the magazine DALAL STREET.

    I found a good company in it. Just need your suggestion, so that i can buy it.

    Name - AMD Industries.
    BSE code - 532828
    Web-Site -

    +ve points

    -FV- 10,
    -CMP below BV i.e.Price/Book-0.45
    -Less P/E of 7,
    -Good promoter's holding of 58%,
    -Though small business of making caps for beverages but the client list is mind-blowing like Coca-Cola, Pepsi and UB group.
    -Market capital half of sales turnover, so room to grow.
    -Excellent Dividend Yield.
    -In current financial year, 9 months Net Profit is much more than Last full year's Net Profit.
    -No Need of any R & D.

    -ve points

    -Large equity
    -Very high debt,
    -High chances of new competitor.
    -? Growth prospects
    -Diworsification by also doing business in real estate and textiles.

    I need your valauble opinion about MAD industries.
    It looks like value buy, but does it have a potential for mulit-bagger.

    With Regards,

  2. Hi Rajeev,
    It seems like your almost all recommendations are flying high. It will be great if post an article about your market experience (good as well as bad) that will be great to learn to all of us

    Keep Going..............

    I am planning to hold one liquor stock for long term as I know ppl wont stop drinking at least for this century But biggies like UB, United Spiris, Radico all are expensive and unlikely to be multibagger at CMP. Can u suggest any small cap (<300 crore) liquor stock with great potential which I can buy and FORGET

  3. Dear Rajeev,

    Today , Shree Ganesh Jewellery Housing listed and is trading at 35% below its listing price. The listing price of Rs.260 was considered at multiples of 8 PE forward earnings. Now that there is a further 35% discount , can this be bought for very good returns in next 1 year? Would appreciate your analysis on this.


  4. mk, no idea on the one u r asking...

  5. Rajiv ji
    i am fully agree with you. I also hold 5000 crompton greaves rs 10 paid value stock @ 20 but exit near 22 because this scrip not moov and i bore to hold it. in past i sold so many scrip at throwaway price which managment are so called bad and scrip not moove with market or comprison to other scrip.But after my sale scrip fly like Rocket when managment change or some thing change like theme,trend or anything else.
    videocon, essar and thaper group is example.
    I like your these line very much
    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
    thanks Rajiv ji for your advice
    i follow your advice in future because no one explain me like this.
    one thing more please sujjest me some good scrip in hotel and tourist sector.
    i hold viceroi hotel, thomas cook and international travel house.some one sujjest me
    Suave HotelsBSE: 531373 | NSE: | ISIN: INE319B01014 cmp 30 some rumour are one big player meet with manegment.
    please advice me your opinion
    thanks with best regard

  6. Hi Rajeev,

    Just trying my luck here. Do you recommend any mutual funds too :-)


  7. :-)

    Thanks Rajeev.


  8. Dear Rajeevji ,

    I hold Poddar and Surya Roshni in my portfolio amongst your recommendaations. I also hold JP Associates. Do you have any views on JP ? Can it be a multibagger in another 3 to 5 years or should I convert it into other scrip ?


  9. Dear Rajeev,
    An article in todays edition of the Business Line. Also adding some updated from reuters "US sets hefty duties on Chinese steel pipe

    The United States on Friday set final anti-dumping duties ranging from 30 per cent to 99 per cent on more than $1bn of Chinese-made steel pipe in one of the biggest US trade cases on record.

    The Commerce Department announcement came days before Chinese President Hu Jintao will be in Washington for a nuclear security summit. However, the timing was driven by the U.S. statutory calendar for dealing with trade injury cases

    China’s government and exporters are being told we are fed up with their cheating on our fair trade laws and penalties for these transgressions are long overdue,” Leo Gerard, president of the United Steelworkers union, said in a statement applauding the decision.

    The steelworkers have been a driving force behind many recent trade actions against China and were joined in this case by seven US producers: United States Steel, Maverick Tube, Evraz Rocky Mountain Steel, TMK IPSCO, V&M Star, V&M TCA and Wheatland Tube.

    Beijing has protested a rising number of US anti-dumping and countervailing cases against Chinese imports as protectionist. The United States says they are defensive measures against unfair trade practices.

    More than three dozen Chinese companies received a final anti-dumping duty rate of about 30 percent, down from a preliminary level of 36.5 per cent announced in November.

    But Jiangsu Changbao Steel Tube Co, which was not hit with any preliminary duty, now faces the ”China-wide” rate of 99.14 per cent for all other producers and exporters of the ”oil country tubular goods (OCTG),” the Commerce Department said.

    The United States imported $2.7bn worth of the steel pipe used in oil and natural gas production in 2008, making it the highest-value US trade injury case on record.

    But because of slumping demand and US duties already imposed in the case, imports of the product from China fell last year to about $1.1bn.

    The anti-dumping duties set on Friday to offset below-market prices are in addition to countervailing duties ranging from 10.36 per cent to 15.78 per cent announced earlier to offset government subsidies for Chinese producers.

    ”We pretty now much have a minimum 43 per cent duty against every OCTG import from China,” said Roger Schagrin, attorney for the steelworkers and five of the seven companies involved in the US case.

    The decision is well timed because of US oil and natural gas industry plans to ramp up production again and should help thousands of laid-off workers in the OCTG, steel, ore-iron and coking sectors get their jobs back, he said.

    The US International Trade Commission could still strike down the anti-dumping duties if it decides domestic producers have not been harmed by the lower-priced Chinese products.

    That vote is scheduled for May 10. The panel has already found injury in the countervailing duty portion of the case.

  10. @ Ashok Mahajan : Pls do not feel bad but wanted to get a clarification. You said you had held Crompton Greaves @20/- sometime back but I checked the price history of this scrip and found that it never floated @20/- in this whole decade from 2000-2010. Can you pls tell me in which period did you hold this @20/-.
    Rajeev pls do not mind this. I just want to know the fact.

  11. Hi Ashish,

    Crompton and Greaves was quoting below 10 in first 6 months of 2003....I donno where u find that it was never quoting at 20 in last 10yrs...if you will open the link you will see that not 20 ,it was even below 10.....
    Click this link.....

    and you will find that Crompton and Greaves was quoting below 10 from start of 2003 till mid 2003....
    Now if u do not know how to look then it is your problem ....

  12. Rajiv ji
    today i add 100 share(sip mode) of essar oil and add on every dips. i try to add rathi steel but not got because once again see euforia buy on your recomandation. at what price we enter in rathi when euforia end of your recomandation and scrip settle .
    Rajiv ji
    i m one man army till 2006 no guide, no teacher and no adviser except worthless advice of broker magazine and blue channel jokers. if i meet or know You and my 2 other guru and their recomandation and advice than i outperform the market and my performance in stock market.
    if u allow and add me on your chat list i m highly obliged
    thanks with best regard

  13. ashok,
    I am also one man you think I have a team of 20 with me?
    That is why it becomes more and more difficult for me to:
    1)Track Stocks
    2)Find new undervalued stocks
    3)Diggin those stocks so that I can put it here
    4)Write answers to queries of readers
    5)Read business internet papers etc etc...

    There are others things also that I do and if I write that the list goes on and on.....

  14. Thanks rajeev,
    I checked in economic times chart where crompton was shown always above 100/-. But anyway if you say it was at 10 then no question of me going n checking it again.

  15. Rajiv ji
    i want to add more essar oil. i hold 300 share after your it right time or i wait for some more corection

  16. Rajiv ji,
    I have essaroil @ 155, should i keep holding it.