Cairn Energy-BUY

Recently a freind of mine who works as an analyst in ubs forwarded me their coverage on cairn energy.Its an interesting report and if cairn comes out with numbers as per UBS estimates-Expect huge upsides on the counter.

Scripscan:Cairn india ltd
CMP:260
Target:374
Traded in:Nse-bse

[Cairn india ltd news,views and analysis/Oil exploration company/turning it on/buy call given by ubs/major beneficary of high crude oil prices/upcoming results/great future prospects/going to do wonders/target price/Hidden gem/Great bet to own/what to do with cairn energy ltd?]


Upgrading to Buy on revision of UBS crude oil prices:We upgrade our rating on Cairn India to Buy (from Sell) and price target to Rs374 (from Rs246) on the back of the upward revision to UBS forecasts for crude oil price. UBS revised the oil price forecasts for all years from CY08 and including the long-term forecast. Given our new explicit oil price forecasts till CY12, we believe the current price reflects a long-term oil price of only $48/bbl.

UBS raises the oil price forecasts including long-term forecast:UBS has raised the oil price forecast to US$ 113.5/120/116/135/155 per barrel in 2008/09/10/11/12 respectively primarily driven by the expectation of supplies falling short of demand substantially pulling down spare capacities. UBS has also raised its long-term oil forecast from $73/bbl to $95/bbl from 2013, on the expectations of higher cost inflation in key upstream projects and GlobalOilCo.

Raising earnings estimates for Cairn India:Driven by the new higher forecasts for crude oil, we raise the earnings estimates for Cairn India in CY08/09/10 by 209%/110%/73% to Rs 1.4/14.0/74.6 respectively. We do not revise any of our assumptions on productions costs in doing so.

Valuation:We change our rating to Buy and raise our target price to Rs 374. Our price target is based on our NAV estimate for Cairn India's E&P assets. We use a DCF to value CIL's stake in Rajasthan, Ravva and Cambay blocks. For the remainder of CIL's assets, we use EV ($)/boe. We also factor in exploration upside by assuming net unrisked reserves of 550 mmboe adjusted by a risk weight of 20%.
Source:UBS