Recommendation Review: Cairn India

We had recommended buying shares of Cairn India in DSIJ Vol. 28, Issue No. 6 (dated March 10, 2013), when it was trading at a price of Rs 310. The fact that the company had received government approval for its exploration plan was the major reason behind our recommendation. While this approval had lifted the mood the on the stock, it has failed to perform to the expectations of the market after that. We had reviewed our recommendation at an earlier point too, when it was trading at Rs 288. Now the stock has gone up to Rs 314, trading at a 1% gain from our recommended price.

In its results for the first quarter of the current fiscal, the company has recorded the highest ever production of oil due to rise in output in the Rajasthan block. Its revenues, however, went down due to higher sharing with the Government of India. The net profit also declined by 18 per cent to Rs 3127 crore. The company, on its part, has said that it will see a rise in oil production from this block and that the exploration programme is well on track.

The company paid a dividend of Rs 6.50 per share in July 2013, which is a two per cent gain on the recommended price, resulting in a total three per cent gain in the stock so far. With the markets becoming volatile, we believe that one should book partial profits in the stock and take the gains made off the table. We remain optimistic on the stock over the new exploration programme and advise investors to continue holding the rest.