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Smart Company: What ONGC cannot do, Cairn India can

There are few surprises in Cairn India’s announcement of its third quarter results. The company has posted a net profit of Rs 2,261.93 crore as compared to Rs 2010 crore in December 2010 and Rs 763 crore in September 2011. Market expectation from the company was a figure of Rs 2071 crore. A higher other income component of Rs 112.35 crore for December 2011 as compared to Rs 34.16 crore last year is one of the main reasons for the deviation.

Sales for the quarter ending December 2011 was Rs 3096.76 crore as compared to Rs 3096.44 in December 2010 and Rs 2652.22 crore in September 2011.

The results include foreign currency gains of Rs 301.47 crore for December 2011 as against nil in December 2010. September quarter profits were also boosted by Rs 531 crore as a result of foreign currency gains. The company in other words has benefited by almost Rs 830 crore as a result of currency depreciation in a period when the rupee has fallen from 44 to 53 against the dollar.

Cairn India is also helped by the fact that though it sells its oil in the country, its prices are dollar denominated and are pegged to the comparable lower sulphur content, Bonny Light variety of crude.  This type of crude trades generally at a discount of 10-15 percent to the Brent crude. During the quarter ending December the discount over Brent was only 8.3 percent as demand for lighter crude decreased.

Cairn India has benefited by almost Rs 830 crore as a result of currency depreciation, as the rupee has fell from 44 to 53 against the dollar. Reuters

Cairn India in undoubtedly one of the best hedges against rising crude oil prices and depreciating rupee. Unlike ONGC, which has to cross subsidise oil marketing companies, Cairn India has no such restrictions.

What prevents growth for Cairn India, is government clearance for increasing its capacity and infrastructural bottlenecks for evacuating oil.

Only since January 2012, has the company been allowed to increase oil production. With the current permission the company can raise its production from 125,000 barrel per day to 175,000 barrel per day. The company says it has reserves and capacity to raise production to 240,000 barrel per day, for which it has already asked for permission. Analysts have pegged the company’s capability of touching 300,000 barrel per day by 2013.

The other constraint to growth is the pipeline required to evacuate oil. As the oil from Cairn’s fields is very thick it needs to be transferred through special steam jacketed pipelines. Laying such a pipeline through desert and maintaining it is proving to be a tough task. Though the rated capacity of the current pipeline is 175,000 barrel per day, the company says it can handle much higher capacities with a few additional balancing equipment. Cairn is in the process of adding 80 km of pipeline which will then make the crude oil available at the ports.

The company already has sales arrangement in place to pick up 170,000 barrel per day to various public sector and private refiners.

Though rupee has firmed up since December from 53.34 to 50 levels, brent crude prices have remained flat during January. However, the company will benefit in the fourth quarter by way of higher output, which has increased by 40 percent. With war clouds again gathering over middle east, crude prices can move higher.

Based on its December numbers, the annualised earning per share (EPS) for Cairn works out to Rs 47.4, discounting the current share price of Rs 350 by only 7.3 times. With volume to double over the next two years and crude oil holding above $100 per barrel despite world economies slowing down, Cairn offers a decent long term bet.

Source :Money Control 25th Jan 2012







Ten Great Tips For Each Day

1. Stay out of trouble.

2. Aim for greater heights

3. Stay focused on your job.

4. Exercise to maintain good health.

5. Practice team work.

6. Rely on your trusted partner to watch your back. Take your time trusting others.

7. Save for rainy days.

8. Rest and relax

9. Always take time to smile.

10. Realize that nothing is impossible.
This should make you smile:



Lecture by Chetan Bhagat at Symbiosis


Enthusiasm without direction is like wildfire and leads to frustration

On the best sunny day, the most powerful magnifying glass will not light paper if you keep moving the glass. But if you focus and hold it, the paper will light up. That is the power of concentration. A man was traveling and stopped at an intersection. He asked an elderly man, "Where does this road take me?" The elderly person asked, "Where do you want to go?" The man replied, "I don't know." The elderly person said, “Then takes any road. What difference does it make?"
How true. When we don't know where we are going, any road will take us there. Suppose you have all the football eleven players, enthusiastically ready to play the game, all charged up, and then someone took the goal post away. What would happen to the game? There is nothing left. How do you keep score? How do you know you have arrived?
Enthusiasm without direction is like wildfire and leads to frustration. Goals give a sense of direction. Would you sit in a train or a plane without knowing where it was going? The obvious answer is no. Then why do people go through life without having any goals?


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