Cairn Energy-BUY,HDIL-Sell

Recently a freind of mine who works as an analyst in ubs forwarded me their coverage on cairn energy.Its an interesting report and if cairn comes out with numbers as per UBS estimates-Expect huge upsides on the counter.

Scripscan:Cairn india ltd
CMP:260
Target:374
Traded in:Nse-bse

[Cairn india ltd news,views and analysis/Oil exploration company/turning it on/buy call given by ubs/major beneficary of high crude oil prices/upcoming results/great future prospects/going to do wonders/target price/Hidden gem/Great bet to own/what to do with cairn energy ltd?]


Upgrading to Buy on revision of UBS crude oil prices:We upgrade our rating on Cairn India to Buy (from Sell) and price target to Rs374 (from Rs246) on the back of the upward revision to UBS forecasts for crude oil price. UBS revised the oil price forecasts for all years from CY08 and including the long-term forecast. Given our new explicit oil price forecasts till CY12, we believe the current price reflects a long-term oil price of only $48/bbl.

UBS raises the oil price forecasts including long-term forecast:UBS has raised the oil price forecast to US$ 113.5/120/116/135/155 per barrel in 2008/09/10/11/12 respectively primarily driven by the expectation of supplies falling short of demand substantially pulling down spare capacities. UBS has also raised its long-term oil forecast from $73/bbl to $95/bbl from 2013, on the expectations of higher cost inflation in key upstream projects and GlobalOilCo.

Raising earnings estimates for Cairn India:Driven by the new higher forecasts for crude oil, we raise the earnings estimates for Cairn India in CY08/09/10 by 209%/110%/73% to Rs 1.4/14.0/74.6 respectively. We do not revise any of our assumptions on productions costs in doing so.

Valuation:We change our rating to Buy and raise our target price to Rs 374. Our price target is based on our NAV estimate for Cairn India's E&P assets. We use a DCF to value CIL's stake in Rajasthan, Ravva and Cambay blocks. For the remainder of CIL's assets, we use EV ($)/boe. We also factor in exploration upside by assuming net unrisked reserves of 550 mmboe adjusted by a risk weight of 20%.
Source:UBS







Another report made by one of my research analyst freind.
[Housing Development & Infrastructure Ltd(HDIL) news,views and analysis/future prospects/buy,hold or sell?/real estate downfall/bombay airport/what to do with HDIL?/better bets available/reason for upmove in JPT securities/scrips and companies to buy below 500rs/prospects of realty sector]


HDIL-Mired In Dharavi
BSE 532873; CMP Rs 338

Industrialists/Businessmen/Investors must realise that charity and politics do not go hand in hand in India. Look at HDIL which is undertaking a mammoth project for the reconstruction and rehabilitation of the slums adjoining the Bombay Airport, known as Dharavi.

What HDIL promoters and investors do not realise is that the project will see huge arm twisting and flow of grease money to successive political parties which are and would be governing Maharashtra, the labour unions and local legislators.

The Dharavai slum rehab will costs huge sums and will be spread over years if not decades, and ultimately meet the same fate as Enron's 2000 MW LNG based $ 3 bn Thermal Power Plant at Dharwad, which inspite of its re-christening as Ratnagiri Power and owners like NTPC, remains non-operational long after Enron collapsed.

The HDIL stock is a Sell, even though the notes given below by the management will make us feel otherwise.

Airport project to generate revenues from 1QFY09:Management expects that the company will convey ~53 acres of land for the first phase of the project (involving resettlement of 18,000 – 22,000 families) in
1QFY09 . As per estimates this move will generate Land TDR of ~3m sf. Revenues on the same could also be recognised in 1QFY09 itself.

The first phase of rehabilitation families is expected to take 24 months.
Recent policy changes on SRA beneficial

Management has welcomed the increase in size of tenement given under the slum redevelopment scheme from 225sf to 269sf of carpet area (460 sf super built up) as they believe that while increased FSI will compensate the developers for constructing a larger house, a larger unit size will also make it easier to convince the slum dwellers to move from their existing dwelling.

Increase in housing size also adds to the TDR receivable from the airport project, which the management now expects to be 40m sf (construction TDR).

Land requirement for airport project:The increase in applicable FSI for high density slum rehab scheme from 3x to 4x brings down land requirement for resettlement of airport project to an estimated 150 acres of land. HDIL expects to tie-up the land at an average price of Rs200m/ acre. It has acquired and paid for about 1/3rd of land requirement, which will be utilized for the first phase of the project.

TDR realisations:In the first phase of the Mumbai airport resettlement project, families will likely move to Kurla, which will be considered as the source of TDRs. Hence, these TDRs could fetch premium valuation as the point of origination will mean that these TDRs could be utilised in high value zone adjacent to Bandra Kurla Complex (BKC).

Increase in FSI in suburban Mumbai to 1.33x:The move is likely to impact the demand for TDRs adversely as developers will likely buy 0.33x of FSI from the state government.

No immediate need to raise additional funds:The company’s outstanding debt has increased by Rs18bn so far in FY08 to Rs22bn to buy land for airport resettlement project and the Vasai SEZ project. The gross debt/equity ratio is still reasonable at 0.73. The current cash balance of Rs17bn includes the recent commercial asset sale.
source:Rajb haanda



Regards,
ARUN
I can be reached at:arunanalyst@rediffmail.com