Why now:
The stock price in September 2008 (20%); the stock now offers 23% potential upside
to our 12-month DCF-based target price of Rs245.When recommended pirce was 199 its 220 now.Those who bought must have benifited from this rise. nearly 10% in 2 days.
Company fundamentals:
(1) strong resource base in Rajasthan
with recoverable reserves at 1.1 bn bbls (including 300 mn bbls of EOR),
(2) potential
of new discoveries in its 12 exploration blocks and
(3) strong execution capabilities.
Key downside risks stems from further decline in crude prices—may result in correction
in Cairn's stock price.
Reward-risk balance more favorable after recent steep correction.
4) strong backing for its UK parent company.
Cairn's stock price has high positive correlation with crude oil prices although the
valuation for Cairn does not vary significantly with higher crude oil prices. Thus, we
would be aggressive in buying the stock when the stock is discounting a 'low' crude oil
price in perpetuity. We believe this is the case currently. Our normalized long-term
crude price is US$75/bbl based on the economics of a Canadian oil sands producer,
which we treat as a marginal-cost producer.
Snap shot cmp: Rs199
Rating
Sector coverage view
Target Price (Rs) 245
52W High -Low (Rs) 343 - 125
Market Cap (Rs bn) 371.0
Financials
December y/e 2007 2008E 2009E
Sales (Rs bn) 16.6 35.7 71.3
Net Profit (Rs bn) 1.9 7.3 38.4
EPS (Rs) (0.1) 3.9 20.3
EPS gth (108.2) - 430.2
P/E (x) ( 1,666) 5 0.6 9 .8
EV/EBITDA (x) 4 6.4 20.6 6 .8
Shareholding, June 2008
% of Over/(under)
Pattern Portfolio weight
Promoters 6 4.8 - -
FIIs 10.5 0.8 ( 0.7)
MFs 1.7 0.7 ( 0.8)
UTI - - ( 1.5)
LIC 2.0 0.7 ( 0.8)
Catch is the share holding pattern.Companies which are over owned(RPL/Reliance for eg) do not move much coz there are many hands to mess up the movement.This is one company which has minimum retail holding.Which works in favour of the company.
Shorterm target: 245-250,Stock technically has good momentum over 230.1 yr target 300+
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