Winds of change already blowing for Cairn India stock

Winds of change already blowing for Cairn India stock

New Delhi: So what is driving the Cairn India stock?

On a day of widespread selling, it is the only stock in the Nifty-50 group that is gaining. At noon, it was trading at 356, up 1.6%.

The biggest factor seems the prospect of the government clearing the Cairn-Vedanta deal. Two weeks ago, the oil & gas minister Jaipal Reddy said that he intends to take the Cairn-Vedanta proposal for cabinet approval in 2-3 weeks. In the process, the ministry sought views from different government departments and also got clearance from the Companies Affairs ministry. This has built positive momentum in the stock, which is on an upward swing since the new minister took charge.

Analysts expect the government to clear the deal with some riders.

Nipun Sharma and Gordon Kwan of Mirae Asset reason:

ONGC’s new request to include royalties into cost petroleum is likely to be shot down by the Indian cabinet, as this would destroy value for Cairn India; discourage foreign oil companies from investing in India and hurt long-term energy security. Disrupting investment in domestic E&P amid the grave threat of supply disruption from the Middle East and North Africa region would be a politically disastrous move.

The spurt in crude oil prices is also helping sentiment. The company, which is producing 1.25 lakh barrels of oil per day from its Mangala oil field, is in the process of commissioning its second biggest oil field, Bhagyam, into production. With the commissioning of the new block, total oil production is expected to touch 1.75 barrel per day in second half of this year.

The Mirae note adds:

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 a pass. Every $1 per barrel increase in oil price adds 1.5% to Cairn India’s earnings.

This is one company whose investors are happy about rising crude prices rather than the other way around.