OGDCL – POST-GDR AND 2ND IPO

OGDCL was listed on GDR on December 18, 2006 at a price of US$ 1.89/share, which accounts approximately to Rs. 113.40 (the exchange rate being Rs. 60/US$ 1). Moreover, GoP also launched 20 million shares from its holdings in the company in what is a secondary public offering and what is termed a second IPO in mid-January of this year at a price of Rs. 110/share.

Market capitalization of the company currently is Rs. 588 billion. The share capital of the company is Rs. 43.01 billion divided into over 4.3 billion shares of Rs. 10 each. Out of the total shares, at just over 95% shares are held by GoP, the rest are with the general public. The public offering will marginally reduce GoP’s holdings in the company to 94.56%. Public holdings would increase 5.44%.

For you guys with less than 10 fingers out there, let’s go over the numbers one more time:
- Face value is Rs. 10/share
- GDR listing price is Rs. 113.40/share
- Second IPO priced at Rs. 110/share
- Market price currently is Rs. 130
- Book value/share is Rs. 22.03

The secondary public offering price, with transfer expenditure and financial cost for the last 3 months, it will cost around Rs. 114. Taking all this into consideration, is OGDC worth buying?

About the company

OGDC is the largest company in the oil sector (POL). Market capitalization was Rs. 588 billion as at June 30, 2005, which will now increase to Rs. 590 billion. The company holds the largest oil (37%) and gas (32%) reserves in the country. The company’s share in country’s total oil and gas production is 48% and 22%, respectively, with current production level of 40,000 billion barrels (bbl) oil and 950 million metric cubic feet (mmcf) gas per day. On its exploration front, the acreage is a daunting 75, 905 square kilometers (sq. kms.).

Last Year’s Result

A snapshot of the results reported by the company year ended June 30, 2005 are:
- Sales Revenue Rs. 96.8 billion
- Profit after Tax (PAT) Rs. 46 billion
- Total Assets Rs. 121.30 billion
- Earnings/share (EPS) Rs. 10.69

Future Plans

OGDC plans to drill more than 40 wells during 2006-’07, the breakdown of which is five wells as follows: Lashari Centre 5, Sona 7, Chanda 2, Qadirpur 27 and 28 will start producing. Various oil and gas field development projects, including VCH 11, Tando Ala Yar, Sinjhoro, Dhodak, Dakhni, Chanda, Qadirpur Gas Compression, Qadirpur Additional Gas Capacity, are under implementation and will further enhance OGDC’s production level by 8,000 to 10,000 bl., 350 – 400 mmcf of gas, 600 million ton (m.t.) of LPG and 80 m.t. of sulphur/day. OGDC is also seeking exploration and production opportunities internationally.

Future Profits

The company has shown an overall CAGR in sales at an average of 28.61% over the period of 5 years. This was basically due to the increase in oil prices internationally where company showed a growth of 43% and 31% for 2003-‘04 and 2004-‘05 respectively. While in terms of quantity sold, there was a decrease of 1% in oil and an increase of 2% in gas and 7% in LPG and sulphur. As the oil prices in international markets decreased to the level where they were 20 months ago, this will effect growth in sales this year as well. On the other hand, if the projects mentioned above start production, it will result in an overall increase in sale of 111.80 million. I believe the company’s net sale in coming year will cross the Rs. 100 billion mark. Profit margins might slow down but the overall profits would increase over the last year, making EPS between Rs. 11.50 and Rs. 12.

Small Price History

The first IPO was of Rs. 32, the lowest price for the share where it showed an overall high of Rs. 192 in March 2005. The lowest OGDC came after that was Rs. 86. Now it trades at Rs. 130.

Conclusion

The current asset valuation depicts a strong company, posing no threat in the future. Investment in OGDC post-impending correction is a frugal decision. As in my article “The (Passed) Winds of Change (both parts), where I discussed three reports, SBP’s, Goldman Sachs’ and Merrill Lynch’s, it is a strong belief that the oil sector will be a pick for FDIs, further boosting growth in the sector. OGDC has 21% weight in the KSE-100 index, so some new highs can be expected. I see OGDC as the third pick after PPL and POL for investment in this sector. Keeping an eye on the current market position, I think that OGDC should cross Rs. 150 in the coming future on rebound.