Cairn India traded at 156.50 on the Bombay Stock Exchange on Friday, posting a weekly gain of 8.30 per cent. The stock is now just a few rupees away from its issue price of Rs 160 a share. The stock has been languishing since its IPO mainly because of issues related to pipeline and the pricing of crude. |
The price trigger came from recent reports that the company has received the government's nod for the 600-kilometer pipeline in Rajasthan, which would enable it to sell oil directly in the market. |
The control over pipeline assets along with cost recoverability of its capital expenditure seems to be a viable solution, according to an analyst. With most of the exploratory drilling in 2007 focused on the producing blocks, new blocks would take a while to deliver results. |
One of the biggest attractions of Cairn, according to a Citi group analyst, is that it is a pure play on the global oil price, devoid of any subsidy-sharing risk. Crude oil prices have rebounded from mid January on colder weather, higher implied demand, tighter OPEC supply and geo-political tensions. |
Cairn India has a strong correlation to the long-term Brent price. Every $1/bbl increase in the price of brent leads to an increase in valuation by about two per cent. |