An Upbeat Mood On Cairn India

The Vendanta Group Company Cairn India has said that it has found oil in the 26th well which it was drilled in the Rajasthan oil fields. The company has said that according to technical indicators, there is about 10 metres of gross oil column in the well.

Cairn India had started drilling this well in the Rajasthan oil fields in February 2013 post receiving the approval from the government to explore more blocks in the region. Having tasted success in the first well, the company would now be positive on the possibility of finding more oil in the block. It has planned to drill 100 wells in the oil field and has already upped the reserves in the field.

We believe that the latest success in exploration will add to the excitement of the company’s shareholders. The shares of the company, on this news, closed with 1.57% gains. The stock had slipped as low as Rs 267 a piece in the last month but has now regained investors’ trust and has gained as much as 9% since then.

Cairn India is also looking to increase the oil production from 2.5 lakh barrels of oil equivalent per day (boed) to nearly 3 lakh boed in FY14 in the existing capacity. Addition of the new well would therefore increase its capacity and revenues when the well begins actual production.

The Oil and Gas sector has seen reformist initiatives by the government in the last fiscal. The government is also expected to further clear a few oil and gas blocks which will improve the sentiment on the scrips in the sector.

We are bullish on Cairn India which is trading at the price to earnings multiple of less than 5x. At this valuation, Cairn India is the cheapest stock compared to its peers and one must buy it with a 2-years horizon.