>CAIRN INDIA (DEUTSCHE BANK)

Future prospects offset concerns: Hold on raised TP

■ Fundamentals healthy; valuation rich at US$90-100/bbl implied crude price
We maintain Hold on Cairn India and raise our TP by 18.8%, based on our oil team’s increase in CY10/FY11 oil price forecasts (unchanged beyond CY10/FY11). Following this, we revise earnings forecasts and have also added FY12 estimates. Our Hold rating is based on potential E&P success and positive earnings momentum from the Rajasthan start-up offsetting concerns.

■ Smooth Rajasthan ramp-up depends on trucking logistics, pipeline schedule
Cairn anticipates that wells/trucking preparations are on track for train I, which recently started to ramp up to 30kbpd, but we believe this and future ramp-ups entail logistical challenges. As for the pipeline, the company warned that inherent project execution risks and weather could pose challenges to its Dec’09 target. Oil price and E&P upside potential hold the key for longer-term outlook In our view, Cairn India offers a good mid-sized India-centric E&P prospect. Cairn has net OGIIP of 3.1bn, net 2P of 815m, and net unrisked resources/prospects of 1.4bn boe, spread over its 14 exploration blocks.

■ US$ 10-20/bbl swing in Oil price makes or breaks the stock
Our target price is INR240/sh, based on a core NPV of INR248/sh, risked upside of INR29/sh, net debt of INR5/sh, and negative impact of cess at INR32/sh. Upside risk: higher oil realization; large oil & gas discovery; M&A action. Downside risks: further worsening in oil demand on persisting global economic woes; excess supply posing a downside risk to the oil price, slower ramp-up, and production outage and policy issues. (Please see pages 10-12 for further details on valuation
and risks.)

To see full report: CAIRN INDIA