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Conflicting Views on Cairn India

January 10, 2008

Analysts covering Cairn Energy in India have different views about its earnings for the next 12 months. Kotak analysts are not so bullish on the prospects of the company while CLSA analysts have upgraded the target price. herei s what they both have to say,

Kotak on Cairn India:
Cairn has submitted a revised production plan for the Mangala oil field to the DGH with a revised peak production at 125,000 b/d compared to 96,000 b/d in the initial plan. The revision is on expected lines.

Higher oil production plan from Mangala field and higher normalized crude price. We have revised our EPS estimates for CY2008-2010E to Rs1.9, Rs15 and Rs41, respectively, from Rs1.6, Rs11.4 and Rs34.5, respectively. Revised 12-month DCF-based 12-month target price is Rs160 (Rs145 previously) reflecting the higher normalized crude price and roll-forward of DCF. Kotak maintains a SELL on the stock at Rs 250+ levels.

CLSA on Cairn India:
The upstream development and the pipeline project on track, expect greater clarity on Cairn’s Rajasthan block development parameters over the next couple of months. Apart from pinning down the exact first-oil date, a 20% peak production upgrade and a Mangala reserve upgrade also appear likely. CLSA upgraded 2009-15 EPS estimates by 11-20% and stock target price by 8% to Rs298/share to build these in.

The rising cashflow stability post the production upgrade also builds confidence towards an eventual re-rating to the full going concern fair value estimate of Rs347/share (+38%). Maintain BUY.

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