Hold Cairn India; target of Rs 275: Emkay

Emkay's report on Cairn India

In light of the weak crude prices environment, Cairn India has defer its capex for FY16 from the projected USD1.2bn to USD 0.5bn. For FY16, the capex will be spent on Mangala Polymer EOR, MBA infill and sustenance, Gas terminal and pipeline, appraisal / testing of existing discoveries in RJ, seismic activity in non-Rajasthan blocks.

Despite the partial deferment of capex, company still believes the volumes growth in FY16 compared to FY15. However, we don’t see much volume growth in FY16/17 as guided by the management i.e.7-10% CAGR. Thus, we cut our production growth from 8% CAGR for FY14/17 to 2.7% CAGR for FY14/17

"We cut our EPS for FY16/FY17 by 23%/14% to Rs 24/23 respectively, on lower production growth assumption. Also downgraded reco from Accumulate to Hold with revised TP of Rs 275 (Rs 296 earlier). Currently, the stock is trading at a P/E of 10x FY17 EPS and 0.7x P/bv", says Emkay Global Financial Services research report.

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