ONGC stock jumps 3.3% on 51% stake buy in HPCL

With ONGC paying only a modest premium for a 51.1% stake in HPCL, limiting the dilution in the fair value to just 6%, the counter gained 3.3% on Monday to close at Rs 199.95. ONGC will pay close to Rs 37,000 crore to buy the stake. Meanwhile, the HPCL stock lost 3.6% on Monday to close at Rs 401.75 apiece. The price — Rs 474 per share — at which the deal has been transacted is a 9% premium to HPCL’s 26-week average price of Rs 435 and a near 14% premium over the Friday’s close of Rs 416.55. “We compute a modest negative impact of Rs 8 per share for ONGC from the proposed transaction, valuing HPCL at Rs 344/share,” analysts at Kotak Institutional Equities wrote. The clarity on HPCL transaction sets the stage for a reversal of ONGC’s sharp under-performance against the rally in global crude prices, they added. “The ONGC stock has under-performed dated Brent crude price by about 20% over the past six months, amid speculations of significant premium being ascribed to acquire HPCL and necessity of an open offer for HPCL’s minorities, they wrote.

The price would imply a multiple of around 12 times on consolidated earnings for FY18-19, analysts observed. ONGC will not be making an open offer for HPCL’s minority shareholders. ONGC is required to seek the approval of minority shareholders, once the share purchase agreement has been executed. This is as per the provisions for related-party transactions under Section 188(3) of the Companies Act, 2013.

Oil and Natural Gas Corporation Limited (ONGC)