Neutral on Cairn India - Stake Sale by Petronas - Motilal Oswal

CAIRN INDIA: Petronas sells its 14.9% stake; 10.4% sale to Sesa Goa; Government approval remains an overhang; Neutral

As per Section 10(38) of Income Tax Act, 1961, no tax is payable on long term capital gains on shares/securities/ mutual funds on which Securities Transaction Tax (STT) has been deducted and paid.

Sesa Goa has acquired 10.4% stake (at Rs331/sh) from Petronas, and thus lowered the pressure on Vedanta to acquire controlling (>50%) stake in Cairn India.

Now, even if few shares are tendered in the open offer, Vedanta will be comfortable in acquiring controlling stake in Cairn India from Cairn Energy.

Cairn Energy and Cairn India are awaiting government approval. We believe the GoM's decision will not come earlier than May/June.

ONGC as well as Cairn India till date stand firm on their own interpretation of the royalty recoverability issue and thus there seems to be room for ambiguity.

We assume that Cairn will be required to pay cess (levy) of Rs927/MT v/s the current cess rate of Rs2,675/MT (including education tax and NCCD cess) for our DCF valuation. Higher cess payment than our estimate would be negative for Cairn by Rs23/share. Our current SOTP-based target price for Cairn is Rs352 at a long term Brent price of US$80/bbl. At long-term Brent price of US$100/bbl, our SOTP value would increase to Rs409/share. Maintain Neutral.

Source : Equity Bulls

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