Cairn India: Oil's well

The stock is a pure play on crude oil prices, which are expected to remain firm.

A Rs 212 crore foreign exchange loss resulted in the Rs 1012 crore upstream oil company Cairn India reporting a consolidated net loss of Rs 24.5 crore in the year to December, 2007.

In what was the company's first full year of operations, Cairn, which is in a ramp-up mode, managed a reasonably good average realisation of $74.5 per barrel.

The stock fell 2.6 per cent to Rs 224 on Monday though it has outperformed the broader market since the start of the year thanks to surging global crude oil prices.

Cairn is an oil producer that sells to public sector oil companies, though unlike ONGC and GAIL, it does not share the subsidy burden that arises from marketing companies not retailing finished products, such as petrol, at a profitable price to consumers.

In CY07, December 2007, Cairn reported a consolidated income from operations of Rs 1012.26 crore, while the operating profit or profits before interest tax, amortisation and depreciation costs and excluding write-offs was Rs 416 crore. Cairn's share of oil and oil equivalents, produced by it together with joint venture partners, was 18, 689 barrels of per day.

Cairn plans to spend Rs 7200 crore to develop oil fields in Rajasthan and set up the accompanying pipeline network. Cairn India will bear 70 per cent of this cost while the remainder will be borne by ONGC which has a 30 per cent share in the oil fields.

Cairn should be able to leverage oil production from its Rajasthan oil fields in the second half of CY 09. To fund the development, Cairn recently mopped up about Rs 2,534 crore from Petronas and Orient Global Tamarind Fund, at Rs 224.30 per share. The firm has a net cash position of around Rs. 1,738 crore and is expected to turn in a net profit in CY08.

Bank stocks: Can't bank on them

IDBI Bank has been the first to react to the high inflation situation in the country: on Saturday the bank decided to hold back a proposed rate cut in its benchmark prime lending rate by 50 basis points.

With the debate now shifting to how much of an increase there could be in the cash reserve ratio rather than whether the central bank will cut interest rates, it was not surprising that the BSE Bankex fell 6 per cent today led by heavyweights ICICI bank and HDFC Bank which lost 8 per cent and 6 per cent respectively.

Besides, with the companies now required to mark-to-market their forex losses for March 2007 investors are anxious about whether some banks may have to take a hit in the event that a company defaults. Home loan major HDFC Bank was a big loser, crashing nearly 9 per cent to Rs 2384: investors are concerned about some of its forex exposure.

The anxieties on account of losses from forex derivatives may be overdone; it is not year clear whether banks will take big hits. However, worries about a possible slowdown in loan growth as a consequence of interest rates not coming off as anticipated are understandable.

Other banks too may not lower interest rates now and that could stymie credit growth which has already tapered off to just about 22 per cent compared with 28 per cent in March 2007.

Besides, deposits too have been growing at a slower pace at 23 per cent compared with nearly 25 per cent a year back. That means banks might have to raise deposit rates to be able to grow their loan books.

Also, the march quarter could see a higher quantum of non-performing loans from the retail portfolio. Indian bank have undperformed the broad market by about 10 per cent since the start of the current year and the trend continue.