Oil India Ltd’s growing cash pile has become a reason for concern among investors. The state-run upstream oil company’s cash and bank balance have increased by 15% to about 13,600 crore in the last six months. This amounts to as much as 48% of its market capitalization.

News reports suggest the government’s department of disinvestment is looking to get its hands on the cash of companies such as Oil India. With hardly any movement on the company’s plans to deploy its surplus funds to acquire assets, it’s quite likely that these funds may end up getting used inefficiently.

In a recent interview to the Business Standard, the company’s managing director N.M. Borah said, “We are scouting to acquire producing assets overseas, or at least a participating interest in some producing assets. We are also keen to acquire blocks where discovery has been made and development is pending, or even in mature fields where we can enhance production with our in-house competence. We hope to deploy our reserves in such acquisition."

A report from IDBI Capital Market Services Ltd earlier this week points out, “The company has been trying to acquire producing/developing assets since its IPO (initial public offering), but has not closed any deal. There are concerns that its cash may be utilized to acquire a cross holding in Oil and Natural Gas Corp. Ltd. Such an investment will fetch a holding discount."

The brokerage has put a 20% discount to Oil India’s cash balance, till they are clear on utilization of funds.

Of course, one perpetual worry for state-run upstream oil companies in India has been the subsidy-sharing and the uncertainty surrounding the quantum to be shared. While crude prices have corrected a bit lately, they remain high. Coupled with the sharp depreciation in the local currency, this will lead to massive losses on selling of fuel below cost this fiscal year.

Analysts fear that, like in the last fiscal, upstream oil firms may be asked to compensate a higher proportion of the subsidy eventually. It goes without saying that such a move will hit Oil India’s shares. But more importantly, it’s the use of its large cash reserves that will determine the direction of the stock in the medium term.

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