Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn-Vedanta deal has been approved subject to royalty cost recoverability. We maintain Hold
and lower our TP to Rs310 to reflect the royalty claim. Using the current Brent futures curve
provides a higher valuation (Rs354), but growth prospects remain vulnerable to the timing of
government approvals.
We expect the CIL board to approve government pre-conditions
The Cabinet Committee on Economic Affairs (CCEA) has cleared the Cairn Energy (CEL)-
Vedanta deal relating to sale of shares in Cairn India (CIL). Two of the key conditions are that
royalties are made cost recoverable (not a surprise due to recent news flow) and that CIL will
withdraw the ongoing arbitration on cess payments (surprising, though with no immediate
financial implications). The CIL board could oppose the pre-conditions. But, in our view, it will
finally agree to them as CIL’s growth plans are still subject to approval from the Indian
government/ONGC and they could be delayed if there is any litigation.
CIL’s growth plans subject to ONGC/government approval
CIL management is targeting Rajasthan production at 240kbd. However, the current production
level approved by the government is only 175kbd (Mangala 125, Bhagyam 40, Aishwariya 10).
CIL needs approval to raise Mangala production by 25kbd and Aishwariya by 10kbd, and to use
enhanced oil recovery techniques and to develop the rest of the resources including tight oil at
Barmer Hill. ONGC has rejected a Mangala production rise on technical grounds while the draft
CAG report has questioned the right of operators to carry out exploration within existing
development areas. We believe that there is significant risk of delays in getting government
approvals and, hence, in production ramping up.
Maintain Hold, TP Rs310
We have raised our Brent oil forecasts by US$3-15/bbl over FY12-14F. But, since we now
assume royalty cost recoverability in our estimates, we have cut our FY12-13F EPS estimates by
17% and our target price from Rs360 to Rs310. Our Brent forecasts are conservative and using
the Brent futures curve would raise our valuation to Rs354. Use of cash will also soon emerge as
a key stock price driver given the rising cash pile and likely change in top management.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn-Vedanta deal has been approved subject to royalty cost recoverability. We maintain Hold
and lower our TP to Rs310 to reflect the royalty claim. Using the current Brent futures curve
provides a higher valuation (Rs354), but growth prospects remain vulnerable to the timing of
government approvals.
We expect the CIL board to approve government pre-conditions
The Cabinet Committee on Economic Affairs (CCEA) has cleared the Cairn Energy (CEL)-
Vedanta deal relating to sale of shares in Cairn India (CIL). Two of the key conditions are that
royalties are made cost recoverable (not a surprise due to recent news flow) and that CIL will
withdraw the ongoing arbitration on cess payments (surprising, though with no immediate
financial implications). The CIL board could oppose the pre-conditions. But, in our view, it will
finally agree to them as CIL’s growth plans are still subject to approval from the Indian
government/ONGC and they could be delayed if there is any litigation.
CIL’s growth plans subject to ONGC/government approval
CIL management is targeting Rajasthan production at 240kbd. However, the current production
level approved by the government is only 175kbd (Mangala 125, Bhagyam 40, Aishwariya 10).
CIL needs approval to raise Mangala production by 25kbd and Aishwariya by 10kbd, and to use
enhanced oil recovery techniques and to develop the rest of the resources including tight oil at
Barmer Hill. ONGC has rejected a Mangala production rise on technical grounds while the draft
CAG report has questioned the right of operators to carry out exploration within existing
development areas. We believe that there is significant risk of delays in getting government
approvals and, hence, in production ramping up.
Maintain Hold, TP Rs310
We have raised our Brent oil forecasts by US$3-15/bbl over FY12-14F. But, since we now
assume royalty cost recoverability in our estimates, we have cut our FY12-13F EPS estimates by
17% and our target price from Rs360 to Rs310. Our Brent forecasts are conservative and using
the Brent futures curve would raise our valuation to Rs354. Use of cash will also soon emerge as
a key stock price driver given the rising cash pile and likely change in top management.
No comments:
Post a Comment