Cairn India Ltd – IPO Analysis and Recommendation

Read our earlier review about background of Cairn Energy and Cairn India.

Current IPO proceeds will goto parent company and very little to Indian subsidiary where we will be a shareholder. Cairn has carefully avoided an offer for sale and will suck the money out of company after the IPO. [Refer to page 12 of the Application form, the amount they will withdraw from the company is expected to be between $1.33 to $1.63 billion]
After IPO parent company will still hold 69.5% in Cairn India. So why do the listing drama ?

Cairn as on the date of IPO has huge oil reserves and very little operations. The risk factors also mentions that it may not be easy to extract oil from the Rajasthan[Largest reserve] and many incur additional expenses.

Looking at the financials and other peer group comparisons as stated in various research reports [CLSA, ShareKhan, JM Morgan Stanley], the offer price is expensive. Cairn India IPO is priced at double the valuations of state owned ONGC. [Don’t argue Petronas has bought 10% stake at Rs175, Cairn and Petronas are global oil companies and you never know where Cairn may have bought stake in Petronas at abnormal valuations]

Check out ShareKhan report on Cairn India Ltd IPO

Recommendation: Retail individual investors can avoid investing in Cairn India Ltd IPO. However, if you are a long term investor[3+ years, investment horizon] then you can apply and get allotment for some small quantity[0.094% subscription till Wednesday Midnight, VERY POOR Response] and I am sure just like Reliance Petroleum, you will get Cairn India sometime within the next 12 months below the issue price.

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