Thursday, June 20, 2013

CAIRN INDIA: Underperforming, But Analysts’ Favourite

Cairn India appears to be still a favourite among analysts in brokerage firms tracking it despite the stock grossly underperforming the markets over the past year. The stock has lost close to 12% in the past year against the 13% gain of the benchmark BSE Sensex. 
The underperformance is mainly due to investor concern relating to the company’s production, which has become stagnant much before expected. The natural decline at its biggest oilfield, Mangala, resulted in Cairn’s March quarter production dipping below the Dec ’12 quarter output. 

The company has investment plans to ensure that the production dip is arrested early and that other fields start producing in time, which should enable it to produce over 2,00,000 barrels daily from its Rajasthan field by March 2014 — over 15% higher than the current level.
This doesn’t appear to have enthused investors since the company is battling other problems. Cairn’s profit-sharing with the government is set to go up, while its renewed focus on exploration work in Rajasthan as well as other blocks makes it susceptible to sudden write-offs if its efforts go awry.


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