The stock of hydrocarbon explorer Cairn India, which has been battered by the rout of crude oil and the proposed merger with Vedanta, has seen some respite over the past three trading sessions.
From the 52-week low of Rs 123 on Monday, the stock has recouped almost 14 per cent to Rs 140. Much of these gains happened in today’s trade with the stock gaining nearly 8 per cent.
Three factors seem to have helped. Crude oil (Brent) after touching its 1-year nadir of under $41 a barrel on Monday has been crawling upwards – it is currently about $42.40 a barrel. That’s not much, but for a beleaguered company whose fortunes are largely dependent on crude oil prices, small moves may also matter.
Next, reports that Cairn India plans to invest Rs 1,400 crore to augment its pipeline capacity from its Rajasthan field seems to have aided the sentiment. This may increase the company’s oil carrying capacity from 2,00,000 barrels of oil per day (bopd) to 3,00,000 bopd and natural gas carrying capacity from 6.3 million standard cubic feet per day (mmscfd) to 40 mmscfd.
Finally, the stock after its rout is available at a valuation (price-to-earnings) of just over 6 times trailing 12-month earnings, lower than the 6.7 times it traded at over the past year and 8.7 times over the past five years. But the current valuation, while it may seem cheap, may be for good reasons – the risks that crude oil price will continue to languish and an unfavourable merger with Vedanta going through.