Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Cairn India Limited
Cairn-Vedanta—options
Event: media reports suggest Cairn Energy may give up non-compete fee
Following a ministry panel recommendation that royalty be made cost recoverable
at the Mangala fields, media reports say Cairn Energy may forgo the non-compete
fee of Rs50/share to make up for the lower value of the business.
Impact: lower returns for Vedanta but deal could still go through
Our current valuation of Rs425 incorporates oil at US$95/bbl, 175kbopd peak
production, and assumes royalty is not cost recoverable. It would decline by Rs70
if royalty becomes cost recoverable. At a higher peak production of 210kbopd, our
valuation for Cairn would be Rs455, which would decline by Rs75 if royalty is
cost recoverable. Further, we believe Vedanta may be able to integrate the fields
with new business and hence unlock value as a strategic buyer.
Action: Buy rating as downside risks are limited from current levels
On deducting the non-compete fee, the acquisition price falls from Rs385 to
Rs351. However, the net impact on Vedanta’s returns will be negative and we
estimate that Cairn India’s (Cairn) NPV will fall to Rs380 from Rs425, providing
lower returns than earlier for Vedanta. Our best case of Rs455 assumes upside
from further reserve accretion and longer peak production post further exploration.
Valuation: raise price target from Rs415 to Rs425 on higher closing cash
To sum up, in the event of: a) a lower acquisition price; and b) royalty becoming
cost recoverable, there is still an even chance of the deal going through, in our
view. However, there is downside to our price target and EPS estimates if royalty
is cost recoverable. We increase our sum-of-the-parts-based price target marginally
due to higher FY11 closing cash.
Cairn India Limited
Cairn India is a subsidiary of Cairn Energy PLC, a UK-based crude oil and
natural gas E&P company. Cairn India owns 11 oil and gas blocks that include
producing, development and exploration assets. Rajasthan block RJ-ON-90/1, in
which it has a 70% stake contributes a significant proportion of Cairn India's
total production. In August 2010, the Vedanta Group made a bid to buy
management control of Cairn India by buying Cairn Energy's stake in the
company. The Vedanta Group is waiting for government approval.
Statement of Risk
We believe Oil price and regulation are the major risks to the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Cairn India Limited
Cairn-Vedanta—options
Event: media reports suggest Cairn Energy may give up non-compete fee
Following a ministry panel recommendation that royalty be made cost recoverable
at the Mangala fields, media reports say Cairn Energy may forgo the non-compete
fee of Rs50/share to make up for the lower value of the business.
Impact: lower returns for Vedanta but deal could still go through
Our current valuation of Rs425 incorporates oil at US$95/bbl, 175kbopd peak
production, and assumes royalty is not cost recoverable. It would decline by Rs70
if royalty becomes cost recoverable. At a higher peak production of 210kbopd, our
valuation for Cairn would be Rs455, which would decline by Rs75 if royalty is
cost recoverable. Further, we believe Vedanta may be able to integrate the fields
with new business and hence unlock value as a strategic buyer.
Action: Buy rating as downside risks are limited from current levels
On deducting the non-compete fee, the acquisition price falls from Rs385 to
Rs351. However, the net impact on Vedanta’s returns will be negative and we
estimate that Cairn India’s (Cairn) NPV will fall to Rs380 from Rs425, providing
lower returns than earlier for Vedanta. Our best case of Rs455 assumes upside
from further reserve accretion and longer peak production post further exploration.
Valuation: raise price target from Rs415 to Rs425 on higher closing cash
To sum up, in the event of: a) a lower acquisition price; and b) royalty becoming
cost recoverable, there is still an even chance of the deal going through, in our
view. However, there is downside to our price target and EPS estimates if royalty
is cost recoverable. We increase our sum-of-the-parts-based price target marginally
due to higher FY11 closing cash.
Cairn India Limited
Cairn India is a subsidiary of Cairn Energy PLC, a UK-based crude oil and
natural gas E&P company. Cairn India owns 11 oil and gas blocks that include
producing, development and exploration assets. Rajasthan block RJ-ON-90/1, in
which it has a 70% stake contributes a significant proportion of Cairn India's
total production. In August 2010, the Vedanta Group made a bid to buy
management control of Cairn India by buying Cairn Energy's stake in the
company. The Vedanta Group is waiting for government approval.
Statement of Risk
We believe Oil price and regulation are the major risks to the company.
No comments:
Post a Comment