Cairn India Limited (CIL) posted impressive results for the quarter ended June 2008. Net sales increased 27.8% q-o-q on the back of an increased average price realization, driven by soaring crude oil prices. Despite higher operating expenses, EBITDAX jumped 19.4% q-o-q to Rs2,721.4 million.
CIL is aggressively undertaking exploration activities to add to its current 2P reserves of 1 bn boe. The Company plans to drill 15 wells and conduct 6 seismic surveys in 2008. It actively participated in the NELP VII Round, which concluded in June 2008, to acquire new exploration blocks.
In addition, CIL won an exploration licence to explore oil and gas in Mannar basin, Sri Lanka.
Increasing reserves, rising production potential, and surging crude prices augur well for the company. Based on our DCF valuation, we have arrived at a target price of Rs305, which provides an upside of 23.5% from the current market price. We maintain our BUY rating on the stock.