Mirae Assets maintain target of Rs 420/share on Cairn India

MUMBAI: Mirae Asset has maintained ‘Buy’ recommendation on Cairn India as it expects ONGC’s request on royalties to be turned down by the Indian government. It also sees rising crude oil prices, due to tensions in the middle-east, to benefit the company. It has maintained target price of Rs 420 on the stock.

“ONGC’s recent claim that Rajasthan royalties should be included in cost recovery has added a fresh layer of uncertainty for Cairn India. We see this as overstated. We believe that the India Cabinet will disapprove ONGC’s new interpretation of the Rajasthan production sharing contract as this would destroy value for Cairn India, discourage foreign oil companies from investing in India and hurt India’s long-term energy security.

With Gaddaffi stubbornly holding on to power in Libya and political unease spreading to other parts of the MENA region, we believe oil’s geopolitical premium could rise substantially in coming weeks. Cairn India is India’s only play on higher oil prices, and we expect to see strong share price gains once regulatory overhangs on royalties and deal come to pass. Every $1/bbl increase in oil prices adds 1.5% to Cairn India’s earnings.

We maintain our ‘Buy’ rating and target price of Rs 420/ share. The stock should rally sharply once the policy-related uncertainties are cleared and the stock catches up to the 40% rise in oil prices since August. Even after factoring in the risks of including royalties into cost petroleum, we believe the stock offers a reasonable risk-reward play,” the report said.