Maintain 'buy' on Cairn India – TP Rs.355 - Geojit BNP Paribas Financial Services

- Pipeline bottlenecks remain the cause of production delays. Gross production remains capped at 175000 barrels per day.

- Capped production resulted in cut in estimates by the street.

- The company has shifted focus to raising pipeline capacity by using drag reducing agents (DRA) compared to augmentation. DRA takes six months to test and implement, subject to government approval.

- The long term potential of Cairn is attractive but a little cautious on the delays in the immediate term. The stock may face near-term pressure ahead of clarity on pipeline capacity expansion, government of India approvals and the company's ability to increase production from Bhagyam and initiate Aishwariya.

- The capex clarity gives some comfort on faster approvals from the government and JV partners.

- The stock remains attractive and rated to 'buy' with a target price of Rs.355 over one year. However, the second round of changes to production timelines has made the outlook on the stock a little cautious, as persistent delay could lead to investors not valuing the E&P optionality, which is a part of the street estimates.

- Delays in production would take away focus from the operational performance for 1QFY13.

- Cairn continues to benefit from a lower discount on its crude, which further boosts realizations.

- The company has guided to USD2 billion capex in FY13-14 with a focus on exploration.

- Lower than expected crude prices is the risk to the positive views on the stock.

Source : Equity Bulls

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