Buy Cairn India, target Rs 192: Goldman Sachs

Buy Cairn India, target Rs 192: Goldman Sachs

Goldman Sachs is bullish on Cairn India and has maintained buy rating on the stock with target price of  Rs 192.   Goldman Sachs research report on Cairn India   Source of opportunity   We upgrade Cairn India to Buy from Neutral and raise our 12-month NAVbased target price by 44% to Rs192, implying 21% potential upside. This is based on the above-consensus bullish near-term and long-term crude price forecasts (by our global energy team in a recent upgrade) and emerging visibility on the monetization of Cairn India's Rajasthan asset on the back of resolution of the pipeline issue. We believe that Cairn India's share price reflects only the current 2P reserves in Rajasthan and its EOR potential, but not the potential exploration upside of Rs21/share from the Barmer Hill zone and the cumulative Rs30/share from cash and extant E&P assets.      Catalyst   We believe stock price catalysts include: 1) further exploration success in Rajasthan and the frontier Ganga Valley basin; 2) indication of pricing benchmark for Rajasthan crude; 3) sustained strength in crude prices; 4) demonstration of EOR potential of the Rajasthan asset.   Valuation   We value Cairn India on the NAV methodology based on sum of the DCF valuations of Rajasthan, Ravva, Cambay Basin producing assets, and valuation of Barmer Hill potential and gas find in KG Basin at EV/boe of US$6.0 and US$2.0, respectively. We have raised our earnings estimates by 7%-129% for 2007E-2010E (barring 2009E) based on higher peak production and higher crude price forecasts. The valuation may appear expensive on near-term multiples as monetization of the core Rajasthan asset would start only in mid-2009E. We have not included any value for exploration potential in the frontier basin at Ganga Valley.