Cairn India and Reliance Industries (RIL) are expected to benefit from the government’s decision to allow oil and gas companies to undertake exploration in blocks where the initial exploration period has expired. Essar Oil’s gains, on the other hand, are seen peaking out.
That decision was announced two weeks before the government said (on January 17) that diesel prices would be freed incrementally, over several months.
But the development doesn’t seem to have been factored neatly into the stocks of these companies.
RIL has gained 4.5% since January 1 at Wednesday’s close of `878.25.
Cairn India has fallen 2% to `314.85 during the same time.
Essar Oil, on the other hand, has shot up a whopping 26.87% to `90.65 per share, mainly riding on the diesel deregulation move. Some believe that’s reason to believe the party is nearly over for Essar Oil, while for Cairn and RIL, it is just beginning.
“The Essar Oil stock has already reached its target potential, now there are no upsides expected,” said an analyst from a leading domestic brokerage.
According to the analyst, who does not track Cairn, RIL is a stock to follow in the medium to long term.
Analysts Vinay Jaising and Rakesh Sethia, from brokerage Morgan Stanley, on the other hand, are more bullish on Cairn. “In our view, Cairn benefits immediately from the exploration approvals, while RIL and Essar are likely to benefit from higher gas prices in FY2015,” the duo said in a report dated February 5.
Cairn, with its flagship asset in the Barmer basin in Rajasthan, plans to increase production to 2-2.15 lakh barrels per day (bpd) by the end of next fiscal, from 1.75 lakh bpd now. “We estimate Cairn’s production will see a ~19% CAGR over F2012-15, driven by the Rajasthan field ramping up from current levels of 175kb/d to over 240kb/d by the end of F2015,” said the analysts.
From a long-term perspective, RIL is in a much better position than Cairn, said another analyst from an international brokerage.