Cairn India: Up on govt nod

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Cairn India traded at 156.50 on the Bombay Stock Exchange on Friday, posting a weekly gain of 8.30 per cent. The stock is now just a few rupees away from its issue price of Rs 160 a share. The stock has been languishing since its IPO mainly because of issues related to pipeline and the pricing of crude.

The price trigger came from recent reports that the company has received the government's nod for the 600-kilometer pipeline in Rajasthan, which would enable it to sell oil directly in the market.

The control over pipeline assets along with cost recoverability of its capital expenditure seems to be a viable solution, according to an analyst. With most of the exploratory drilling in 2007 focused on the producing blocks, new blocks would take a while to deliver results.

One of the biggest attractions of Cairn, according to a Citi group analyst, is that it is a pure play on the global oil price, devoid of any subsidy-sharing risk. Crude oil prices have rebounded from mid January on colder weather, higher implied demand, tighter OPEC supply and geo-political tensions.

Cairn India has a strong correlation to the long-term Brent price. Every $1/bbl increase in the price of brent leads to an increase in valuation by about two per cent.