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Cairn India does it again

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Cairn India does it again

Cairn Lanka (Pvt) Limited, a wholly owned subsidiary of Cairn India, has made a Gas Discovery in the block SL 2007-01-001, Mannar Basin, Sri Lanka. Cairn Lanka (Pvt) Limited is the Operator and has a 100% participating interest in the block. Further drilling will be required to establish commerciality. This well is the first to be drilled in Sri Lanka in 30 years and the first successful discovery in the country. Cairn has committed $ 100 mn for its 3-well drilling campaign in this block.

 Consequent to Cairn India’s acceptance of royalty as a cost recoverable item and cess liability on its share of production, the Board of ONGC has issued its NOC to the Cairn-Vedanta deal. We believe that this is a major step forward for the consummation of the deal as well as for obtaining the necessary approvals for production ramp up from Mangala and production start from Bhagyam. We expect news flow regarding production ramp up to be positive near term triggers for the stock going forward.

 We expect production levels to be ramped up to 210,000 bpd by Q4CY12. We expect EPS of Rs 37.5 and Rs 46.5 in FY12 & FY13 respectively. We expect free cash flows of Rs 33 bn & Rs 70 bn during FY12 & FY13 respectively.

 Following the steep correction in the stock price, we upgrade our rating to BUY with a target price of Rs 334, translating to an upside of 23.4%.

Written by Fundamental Side

October 13, 2011 at 12:38 pm