Prabhudas Lilladher has recommended a reduce rating on Cairn India, in its report dated September 25, 2009.
"With a ramp-up in crude production from the Rajasthan block, Cairn's earnings are anticipated to jump considerably over FY10-12. However, concern on the cess payment still remains. The stock price is currently discounting USD 84/bbl as long term crude prices. The stock is currently available at 6.5x FY12E EPS of Rs 39.6 and 3.6x EV/EBITDA. We have valued Cairn on NPV basis, considering crude oil and natural gas production from its existing and future assets. Considering USD 75/bbl as long term crude prices, we have arrived at NPV of Rs 240 for Cairn. We believe that the risk reward is unfavourable at this juncture and hence recommend 'REDUCE'," says Prabhudas Lilladher's report.
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