Smart Company: What ONGC cannot do, Cairn India can
There are few surprises in Cairn
Sales for the quarter ending December 2011 was Rs 3096.76 crore as compared to Rs 3096.44 in December 2010 and Rs 2652.22 crore in September 2011.
The results include foreign currency gains of Rs 301.47 crore for December 2011 as against nil in December 2010. September quarter profits were also boosted by Rs 531 crore as a result of foreign currency gains. The company in other words has benefited by almost Rs 830 crore as a result of currency depreciation in a period when the rupee has fallen from 44 to 53 against the dollar.
Cairn
Cairn
What prevents growth for Cairn
Only since January 2012, has the company been allowed to increase oil production. With the current permission the company can raise its production from 125,000 barrel per day to 175,000 barrel per day. The company says it has reserves and capacity to raise production to 240,000 barrel per day, for which it has already asked for permission. Analysts have pegged the company’s capability of touching 300,000 barrel per day by 2013.
The other constraint to growth is the pipeline required to evacuate oil. As the oil from Cairn’s fields is very thick it needs to be transferred through special steam jacketed pipelines. Laying such a pipeline through desert and maintaining it is proving to be a tough task. Though the rated capacity of the current pipeline is 175,000 barrel per day, the company says it can handle much higher capacities with a few additional balancing equipment. Cairn is in the process of adding 80 km of pipeline which will then make the crude oil available at the ports.
The company already has sales arrangement in place to pick up 170,000 barrel per day to various public sector and private refiners.
Though rupee has firmed up since December from 53.34 to 50 levels, brent crude prices have remained flat during January. However, the company will benefit in the fourth quarter by way of higher output, which has increased by 40 percent. With war clouds again gathering over middle east, crude prices can move higher.
Based on its December numbers, the annualised earning per share (EPS) for Cairn works out to Rs 47.4, discounting the current share price of Rs 350 by only 7.3 times. With volume to double over the next two years and crude oil holding above $100 per barrel despite world economies slowing down, Cairn offers a decent long term bet.
Source :Money Control 25th Jan 2012
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