Cairn India - CMP Rs.332 - 2012 Diwali Pick - Aditya Birla Money

Cairn is the only unregulated play on energy in India. Recently there has been significant increase in reserve estimates and production potential in its Rajasthan block. The Rajasthan block currently is producing ~175,000 bopd, which is more than 20% of India's domestic oil production.

The company stands to gain significantly from the likely production increases over the next two to three years and stable average crude oil prices.

International Developments: The Company has acquired 600 sq km of 3D seismic data under Phase 2 exploration programme in Sri Lanka, preparatory work is on-going to drill an exploration well in mid CY 2013. In South Africa, farm-in agreement in 'Block 1' was signed in August 2012, with PetroSA for 60% stake along with operatorship; the tendering for acquisition of 3D seismic data has been initiated.

Balance sheet strength and valuations: Cash as on Sep 2012 stood at Rs.124bn (~20% of current market cap); Cairn has adequate resources and strong internal cash generation to fund its expansion plans. The Company has approved 20% dividend payout ratio recently, which provides an yield of 3%+ at current valuations. At CMP, the stock trades at a P/E multiple of 5.9x on FY13E earnings; On P/B basis it is available at 1.11x & 0.98x on FY13E and FY14E respectively.

Source : Equity Bulls

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