BHARTI AIRTEL LTD : DONT MISS THIS CALL !!!

Scrip Code: 532454 / BHARTIARTL

CMP:  Rs. 312.05; Buy at current levels.

Medium to Long Term Target: Rs. 345; STOP LOSS: Rs. 287.08; Market Cap: Rs. 1,18,501.19 Cr; 52 Week High/Low: Rs. 370.60 / Rs. 215.80.

Total Shares: 379,75,30,096 shares; Promoters : 260,11,27,176 shares –68.49 %; Total Public holding : 119,64,02,920 shares – 31.51 %; Book Value: Rs. 130.16; Face Value: Rs. 5.00; EPS: Rs. 13.42; Dividend: 20.00 %; P/E: 23.25 times; Ind. P/E: 24.82; EV/EBITDA: 7.39.

Total Debt: 69,023.2 Cr; Enterprise Value: Rs. 1,88,263.89 Cr.

BHARTI AIRTEL LTD: The Company was founded on July 7, 1995 and is based in New Delhi, India. The company was formerly known as Bharti Tele-Ventures Limited and changed its name to Bharti Airtel Limited in April 2006. In January 28, 2002, Company came out with the IPO of 18.35 Cr equity shares of face value of Rs. 10 each at a floor price of Rs. 45.00 per share and raised Rs. 834 Cr. These shares were listed on 15th February 2002 on NSE-BSE at 11 % premium to its issue price of Rs. 45.00. Bharti Airtel Limited provides telecommunication systems and services in India, south Asia, and Africa and 20 other countries across rest of Asia and Africa. The company’s Mobile Services segment offers GSM mobile services; and post-paid, pre-paid, roaming, Internet, m-commerce, and other value added services. This segment also offers 2G services; 3G services such as mobile TV entertainment, video calls, live streaming of videos, high definition gaming, as well as Internet access; and 4G services comprising content, super fast access to high definition video streaming, multiple chatting, and instant uploading of photos. The company’s Telemedia Services segment provides voice and data communications through fixed network and broadband technology for small and medium size business customers. Its Digital TV Services segment offers digital broadcasting services under the Direct-to-home platform. The company’s Airtel Business segment provides end-to-end telecom solutions, such as data and voice, network integration, managed services, enterprise mobile applications, and digital media to large enterprise, government, small and medium businesses, and carrier customers. Its Passive Infrastructure Services segment engages in setting up, operating, and maintaining wireless communication towers. In addition, the company provides fixed line voice and data solutions, and high speed broadband Internet services through direct subscriber line, IPTV, and Direct-To-Home under the Airtel brand. As of June 30, 2012, it served approximately 257 million customers. In April 2013, company signed an Indefeasible Right to Use (IRU) Agreement with Reliance Jio Infocomm Limited (RJIL), a subsidiary of Reliance Industries Limited (RIL), under which Bharti will provide Reliance Jio with data capacity on its i2i submarine cable. The company is compared locally with Idea cellular Ltd, Reliance Communication, Tata Communication ltd and globally with Vodafone Group Plc. of London, AT&T Inc. of USA, Verizon Wireless of USA, America Movil of Mexico, MTN Group of South Africa, China Unicom of China, China Mobile of China, Telenor Group from Norway, Telefonica of Spain, Orange Telecom of France, T- Mobile of Germany, Telia Sonera of Sweden, MTS of Russia, VimpelCom of Russia, Sing Tel of Singapore, Axiata Group Berhad of Malaysia,  Saudi telecom company of Saudi Arabia, Etisalat of UAE.

Investment Rationale:

Bharti Airtel is amongst top four mobile service providers globally in terms of subscriber base. It has over 27.1 Cr customers across its operation at the end of March 2013. Recently on 4th May 2013, Bharti Airtel signed an agreement with Qatar Foundation Endowment under which Bharti will issue 19,98,70,006 new equity shares at a price of Rs. 340 per share to QFE representing a shareholding of 5% in the company post issuance. This investment deal will further strengthen the capital structure and will provide further flexibility for Bharti to deliver on its growth strategy. Goldman Sachs advised QFE on the deal. On 23rd April 2013, Reliance Jio Infocomm Limited (RJIL), a subsidiary of Reliance Industries Limited (RIL), the only pan India operator with Broadband Wireless Access (‘BWA’) spectrum across 22 circles capable of offering fourth generation (4G) wireless services signed a Indefeasible Right to Use (IRU) Agreement with Bharti Airtel Limited, under which Bharti will provide Reliance Jio with data capacity on its i2i submarine cable. This i2i connects India to Singapore. The state of the art cable consists of eight fiber pairs using DWDM, capable of supporting multiple terabits of capacity per fiber pair. Its landing points are at Chennai in India and Tuas in Singapore. This high speed link will enable Reliance Jio & Bharti to extend thier network and service reach to customers across Asia Pacific region. It will connect both the company’s directly to the world’s major business hubs and ISPs, thereby, helping the operator to meet the bandwidth demand and provide ultra-fast data experience to its customers. Bharti’s data business is picking up in India and Africa, So increased composition of data in the total business is expected to improve the Average Rate per User and the Average Rate per Minute. Data consumption continues to grow 20% every quarter and has reached 24 billion MBs during Q4FY13 and now contributes around 6.5% of the total mobile revenues as against 5.7% in Q3FY13. The company had 4.35 Cr data (mobile Internet) customers, of which 64 lakhs used 3G data services.

Outlook and Valuation:

BHARTI AIRTEL’s Data ARPU came in at Rs. 55.00 aided by average data download of 187 MB per user per month (an increase of 26 MB per user over previous quarter), and blended data realization rate being stable at 29.27 paisa per MB. Data ARPU of Rs 55 is very low compared to global standards. So it is expected to see data as the major growth driver in the quarters ahead. Operational metrics of India thus are set to improve further, while the Africa would also improve. Thus a margin improvement despite higher operating expenses could be seen. Regulatory uncertainties would continue to prevail, but it is believed that overall, the telecom Industry should be studied in isolation as the regulatory hindrances have become part of the telecom ecosystem. Nevertheless the short term pressure on profitability would remain considering the potential regulatory payments that needs to be made in the form of one time spectrum charges and the penalty due to 3G roaming arrangement that the company has entered into with other incumbents (if the TDSAT gives an adverse verdict on this front), especially at a time when the competitive intensity has again peaked due to which the operating costs may increase. The fair value of BHARTI AIRTEL comes at Rs. 345.69/share, with the valuation of its investments in subsidiaries coming at Rs. 183/share. At the current market price of Rs. 312.05 - the stock is trading at 30.59 x FY14E EPS of Rs 10.20/share and at 19.50 x FY15E EPS of Rs 16.00/share. Based on last quarterly result and some of the underlying trends, one should not expect significant changes to domestic operational forecasts but African margins perhaps need to be scaled back further. Below the EBITDA line, expect more downgrades due to tax and interest, but hopefully the stock is reaching the end of a long 3-year downgrade cycle, hence the stock could be a buy at current levels with a medium to long term target of Rs. 345.69.

SOTP valuation (FY2014E)

BUSINESS SUBSIDIARY	Value per Share(₹)
Domestic Business	289.65
Zain Africa operations (7 x FY14E EV/EBITDA)	2.00
Bharti Infratel Tower Business (20% disc to CMP)	54.35
Value of Other Subsidiaries	183.00
TOTAL VALUE	529.00
Less:  Debt	183.31
TOTAL VALUE PER SHARE	345.69

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	71,451.00	80,311.20	87,287.80	95,703.90
NET PROFIT (₹ Cr)	4,259.40	2,275.80	3,866.30	6,077.70
EPS (₹)	11.20	6.00	10.20	16.00
PE (x)	28.20	52.90	31.10	19.80
P/BV (x)	2.40	2.40	2.20	2.00
EV/EBITDA (x)	7.80	7.40	6.60	5.40
ROE (%)	8.40	4.50	7.10	10.10
ROCE (%)	8.40	7.30	8.20	10.20

I would buy BHARTI AIRTEL LTD with a price target of ₹ 345.69 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 287.08 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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RELIANCE INDUSTRIES LTD : CASHING IN FROM CONSUMPTION GROWTH STORY !!!

Scrip Code: 500325 / RELIANCE

CMP:  Rs. 802.90; Buy at current levels.

Medium to Long Term Target: Rs. 840.50; STOP LOSS – Rs. 738.66; Market Cap: Rs. 2,35,731.44 Cr; 52 Week High/Low: Rs. 955.00 / Rs. 673.05.

Total Shares: 322,86,63,382 shares; Promoters : 146,39,41,357 shares –45.34 %; Total Public holding : 176,47,22,025 shares –54.65. %; Book Value: Rs. 504.62; Face Value: Rs. 10.00; EPS: Rs. 64.84; Dividend: 85.00 %; P/E: 12.38 times; Ind. P/E: 13.84; EV/EBITDA: 10.36.

Total Debt: Rs. 72,427 Cr; Enterprise Value: Rs. 2,26,132.44 Cr.

RELIANCE INDUSTRIES LTD: The Company was founded on 11th February 1966 by name of Reliance Textile Industries Pvt Ltd in Mumbai, Maharashtra. In November of 1977, the promoters Mr. Dhirajlal H Ambani & Mr. Natvarlal H Ambani along with some other existing shareholders offered for sale at par 28,20,000 equity shares to the public to get listed on Bombay Stock Exchange. In June 27th of 1985, company again changed its name from Reliance Textiles Industries Ltd to its current name Reliance Industries Ltd. Reliance Industries Limited (RIL) is a conglomerate with business in the energy and materials value chain. RIL together with its subsidiaries, primarily engages in the exploration and production of oil and gas in India and worldwide. The company operates two refineries and owns 1.24 million barrels per day of crude processing capacity. The Company operates in three segments: Petrochemicals, Refining and Oil & Gas segments. The Petrochemicals - includes production and marketing operations of petrochemical products namely, polyethylene, polypropylene, polyvinyl chloride, poly butadiene rubber, polyester yarn, polyester fiber, purified terephthalic acid, paraxylene, ethylene glycol, olefins, aromatics, linear alkyl benzene, butadiene, acrylonitrile, caustic soda and polyethylene terephthalate. The Refining - includes production and marketing operations of the petroleum products. The Oil and Gas - includes exploration, development and production of crude oil and natural gas. Its other segment includes Textile, Retail business, Special Economic Zone (SEZ) development and Telecom / Broadband business. RIL, during the fiscal year ended March 31, 2012; increased its interest to 18.53% in EIH Limited. The company is compared locally with HPCL, BPCL, Mangalore Refinery, Chennai Petroleum Corp. Ltd, and Globally with Exxon Mobil Corp and Chevron Corp both from USA; Royal Dutch Shell PLC from Netherlands; BP from UK; Endesa SA from Spain; Rosneft Oil, Lukoil and Gazprom Oao both from Russia; RWE AG and E.On AG both from Germany; China Petroleum & Petro China Corp both from China; Total SA from France; Petrobrass Brasileiro from Brazil.

Investment Rationale:

Reliance Industries Ltd (RIL) is one of the India’s most valued private sector company but its current earnings supports the fact that it is not interested in investing its whopping Rs. 82,980 Cr cash in its core business anymore. This is proven by the fact that its FY12-13 Net profit of Rs. 21,003 Cr had a contribution of around Rs. 7,981 Cr or 38% earned as an interest from the cash pile that RIL had been hoarding from past couple of years. RIL is now concentrating more on its non-core businesses and among them is Retail and Telecom which will directly allow RIL to participate and take advantage of India’s consumption growth story. Reliance Jio Infocomm Limited (RJIL), a subsidiary of Reliance Industries Limited (RIL), the only pan India operator with Broadband Wireless Access (‘BWA’) spectrum across 22 circles capable of offering fourth generation (4G) wireless services signed a Indefeasible Right to Use (IRU) Agreement with Bharti Airtel Limited, under which Bharti will provide Reliance Jio with data capacity on its i2i submarine cable. This i2i connects India to Singapore. The state of the art cable consists of eight fiber pairs using Dense Wavelength Division Multiplexing, capable of supporting multiple terabits of capacity per fiber pair. Its landing points are at Chennai in India and Tuas in Singapore. The high speed link will enable Reliance Jio to extend its network and service reach to customers across Asia Pacific region. It will connect Reliance Jio directly to the world’s major business hubs and ISPs, thereby, helping the operator to meet the bandwidth demand and provide ultra-fast data experience to its customers. Recently, Reliance Jio has formed a consortium with five companies Viz, Telekom Malaysia Berhad, Vodafone Group, Omantel, Etisalat and Dialog Axiata to construct & maintain an 8,000 Km long Bay of Bengal Gateway submarine cable system this will connect India, Sri lanka Malaysia, Singapore and West Asia. This cable system will link all these countries with 100 Gbps technology and will help Reliance Jio in making its network more robust and cost effective, which means lower 4G cost for subscribers. This system may also gain access in international 4G standards- FDD-LTE which is currently unavailable in India as the only 4G band available in India is TD-LTE. RIL’s another prominent subsidiary - Reliance Retail LTD, showed strong growth in sales from 7% to 18% in same store sales format and that also in such a competitive and challenging environment. It currently has a pan India presence with a store count of 1,466 totaling to 9 million sqfts spread across 129 cities and will be soon adding 184 stores more by the end of this fiscal. Reliance Retail has Reliance One loyalty program which has about 13 million members and contributes about 65 % of sales from these loyal customers. These stores every week have footfalls of 25 lakhs. Reliance Retail’s business crossed Rs. 10,800 Cr revenue mark with a growth of 42% YoY as against Rs. 7,599 Cr in FY12. It posted EBIDT of Rs. 78 Cr with a growth of whopping 123% as against the loss of Rs. 342 Cr in FY12. Reliance Retail Ltd has about 50 retail-business as its own subsidiary. Reliance Retail Ltd.’s Fashion & lifestyle format posted revenue of Rs. 1600 Cr showing a growth of 45% from 448 stores and will be adding 95 more new stores. Its Jewellery format posted revenue of Rs. 800 Cr showing a growth of 57% from 51 stores and will be adding 14 more new stores. Its Value format posted revenue of Rs. 6100 Cr showing a growth of 19% from 760 stores and will be adding 10 more new stores. Its Brands format posted revenue of Rs. 200 Cr showing a growth of 82% from 68 stores and will be adding 19 more new stores and its Digital format posted revenue of Rs. 61 Cr showing a growth of 76% from 139 stores and will be adding 46 more new stores.

Outlook and Valuation:

RIL completed India’s largest share buyback programme aggregating to Rs.3,366 Cr and bought back 4,62,00,000 Shares of Face value of Rs. 10 each. RIL posted a record performance in Net Profit of Rs. 5,589 Cr for Q4FY13 which is up by 31.9 % on YoY. Refining Earnings before Interest and Tax beat the street and grew to 4.5% to Rs. 3,520 Cr on back off better Gross Refining Margins. GRM improved from $9.6/bbl to $10.1/bbl. Reliance Sibur Elastomers Private Limited (RSEPL), a joint venture between RIL and SIBUR began construction of their new butyl rubber plant, in Jamnagar. The new plant will be India’s only manufacturer of butyl rubber and the JV will be amongst the world’s top five manufacturers of butyl rubber. RIL will supply monomer and provide the JV with world-class infrastructure and utilities. Reliance has already started market seeding butyl rubber from SIBUR in India. The response is very encouraging. Reliance witnessed sharp improvement in complex refining margin and delivered record performance taking benefit of being an integrated energy Company. The fair value of RIL on basis using DCF comes at Rs. 840.50/share, while the valuation of its investments in subsidiaries comes at Rs. 104.50/share. At the current market price of Rs. 802.90, the stock is trading at 11.75 x FY14E EPS of Rs 68.30/share and at 11.13 x FY15E EPS of Rs 72.10/share. Declining gas production in KG basin as a concern will remain for some more time. RIL on the back of higher incremental new capacity compared to incremental demand refining cycle going ahead could be weak. However, a positive point could trigger from governments stance towards Reliance’s exploration and production efforts and the growth shown by its Retail Business and with the new venture in Telecom by forming JV's and by launching 4G, RIL surely will have the first mover advantage. The buyback of share will impact about 1.5% on EPS and will cause positively to raise it from current level; hence the stock could be a buy at current levels with a medium to long term target of Rs. 840.50.

BUSINESS SUBSIDIARY	Value per Share(₹)
CORE BUSINESS
Refining	318.00
Petro chemicals	265.00
E&P INITIATIVES
KG - D6 Gas (KG Basin)	25.00
KG - D6 MA1 Oil (KG Basin)	11.00
KG - DWN - 2003/1 (D3)	10.00
NEC - 25 (Mahanadi Basin)	15.00
Sohagpur East & West (CBM)	13.00
Other E&P	25.00
INVESTMENTS
In Shale Gas	41.00
In RGTIL, RIIL	11.00
In SEZ	14.50
In BWA	18.00
In Reliance Retail	20.00
Less: Debt	14.00
Plus: Treasury Stock	68.00
TOTAL VALUE OF SHARE	840.50

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	3,57,900	3,62,000	3,26,500	3,21,100
NET PROFIT (₹ Cr)	20,000	21,900	22,100	23,300
EPS (₹)	62.00	67.80	68.30	72.10
PE (x)	14.50	13.30	13.20	12.50
P/BV (x)	2.20	2.00	1.70	1.60
EV/EBITDA (x)	7.40	7.10	7.90	6.30
ROE (%)	14.60	15.70	14.00	13.10
ROCE (%)	12.40	12.90	12.20	12.30

I would buy RELIANCE INDUSTRIES LTD with a price target of ₹ 840.50 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 738.66 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold RELIANCE INDUSTRIES LTD in my investment portfolio. 

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CAIRN INDIA: STRIDING AHEAD !!!

 

Scrip Code: 532792 / CAIRN

CMP:  Rs. 339.15; Buy at current levels.
Short term Target: Rs. 370, 6 month Target – Rs. 415; STOP LOSS – Rs. 312.00; Market Cap: Rs. 64,539.18 cr; 52 Week High/Low: Rs. 401.10 / Rs. 249.30

Total Shares: 190,29,68,633 shares; Promoters : 112,27,13,999 shares –59.00 %; Total Public holding : 78,02,54,634 shares – 41.00 %; Book Value: Rs. 167.12; Face Value: Rs. 10.00; EPS: Rs. 0.11; Div: 30.00 % ; P/E: 00.00 times; Ind. P/E: 11.77; EV/EBITDA: 00.00.

Total Debt: 1,350.00 Cr; Enterprise Value: Rs. 67,730.45 Cr.

CAIRN INDIA LTD: CAIRN INDIA LTD was incorporated in 2006 and is based in Gurgaon, India. The company was former subsidiary of Cairn UK Holdings Limited. Cairn India is an exploration and production company, a leading player in the oil and gas industry in India. Cairn India has been focusing on south Asia, especially India where it has interests in 15 blocks. The firm made more than 30 oil and gas discoveries in India and was listed in January 2007 through an IPO after it spun off from its parent Cairn Energy Plc. Vedanta Resources Plc along with its subsidiary SESAGOA acquired the controlling stake of 51 % at $8.6 billion in Cairn India at Rs.405/sh. SESAGOA brought in $3 billion for 20 % and the rest 31 % was by Vedanta. Cairn holds interest in 9 oil and gas block/fields located in the Baremer basin, the Mumbai offshore basin, the Kerala – Konkan basin, the Palar-Pennar basin, and the Cambay basin in India, as well as 1 block in the Mannar basin off the coast of northwestern Sri Lanka.The company also operates a pipeline and storage terminal. Cairn has working interest in 14 Exploration & Production blocks in Ravva and Cambay blocks which produces 51.4k boepd (Cairn WI 14k bpd). Cairn India sells its oil to refineries; and gas to public sector undertakings and private buyers. Cairn has commissioned three trains at MPT and pipeline section from MPT to Salaya, through which it is delivering crude to refiners. Government of India had granted Cairn India some oil & gas fields through Production Sharing Contract. The company had interest in oil & gas blocks/fields which include PR-OSN-2004/1, KG-ONN-2003/1, KG-OSNsn-2009/3 & MB-DWN-2009/1. CAIRN INDIA is compared with Oil India ltd and ONGC locally and with Japan Petroleum Exploration Company Ltd internationally. 

Investment Rationale:

In Jan'12, Cairn has commenced production from the Bhagyam oilfield in Rajasthan on approval granted by GOI. The benefit of the same will be reflected in Q4FY12. Further, Cairn expects to ramp-up the crude oil production from Bhagyam field to approved plateau rate of 40 Kbopd. According to the Company's management Mangala field, the biggest of the 18 discoveries in Rajasthan block, can produce 150 kbopd as against 125 Kbopd. Bhagyam, the second biggest field in the Rajasthan block, can produce 60 Kbopd as opposed to current approved peak output of 40 Kbopd (50 %), while Aishwariya oilfield can contribute 25 Kbopd as compared to earlier 10 Kbopd (150 %) and other fields can produce 65 Kbopd, subject to required approvals. As on 31st Dec'11, gross cumulative Rajasthan development capital expenditure was at US$ 3,323 Mn. Management has stated that further investments are planned to augment processing capacity and pipeline infrastructure. Recently, Mr. Jaipal Reddy (India's oil minister) has suggested that he will take actions to boost investment and raise oil & gas production. It is believed that this will speed up the process of approvals for production ramp up from Rajasthan fields, this should be significantly positive for Cairn India. Also, India has cut down its crude oil sourcing from Iran. This also demands for higher domestic oil production along with other diversified sources. Cairn's higher crude oil production at elevated international crude oil price along with weakening rupee will partly mitigate the negative impact of increased oil cess announced in the 2012-13 budgets. Cairn India has approached the petroleum minister, seeking support in making a case for a rollback of cess hike to the finance ministry, as per media reports. Any immediate rollback of cess looks unlikely. Also, the recent correction in the stock price discounts most of the negatives. In FY13, it is expected that refineries like RIL, Essar Oil and IOC will increase their crude oil off take from Cairn India (Rajasthan oil fields). With the commissioning of Essar Oil's expanded capacity the demand of Cairn's crude oil will increase. Further, Cairn has been pursuing with the Directorate- General of Foreign Trade (DGFT) for permission to sell crude oil to RIL's second 29-mt refinery at Jamnagar, which is a SEZ refinery. Cairn India’s dividend policy announcement will be a key trigger & will abate concerns regarding the utilization of cash. The Company's management has indicated to announce a sound dividend policy, they may announce special dividend in the coming result declaration. It is also believed that there is a possibility of upward revision in the company's Rajasthan crude oil reserves potential which the market has not discounted yet. Further, any significant reserves declaration from Sri Lankan block can add major value to the Company. Currently, the block is in E&D phase so the same is yet not been priced in. However, experts are bullish on the growth prospects of Sri Lankan block.

Outlook and Valuation:

The recent correction in stock price of Cairn India is mainly due to hike in cess rate by GOI and this will impact earnings. However, Cairn's higher crude oil production from Rajasthan block at elevated international crude oil price along with weakening rupee will partly mitigate the negative impact of increased oil cess. The Company has approached the petroleum minister, seeking support in making a case for a rollback of cess hike & any immediate rollback of cess looks unlikely. In the Union Budget 2012-13, GOI increased the cess on crude oil production to Rs. 4,500/mt from Rs. 2,500/mt earlier. The earlier revision in cess happened during the Budget 2006-07. This increase in cess is attributed to indexation by the government. Although, cess is cost recoverable while calculating the profit petroleum for the upstream companies, the absolute impact in earnings would be still substantial. CAIRN INDIA has announced its production figures for the JAN - MAR quarter, the average daily gross operated production was of 1,80,293 Barrels of Oil Equivalent (BOE) for the quater, with working interest production at 1,07,292 Barrels of Oil Equivalent Per Day (BOEPD). Cairn India announced an oil discovery in the Nagyalanka - SE-1 well, which is is the second discovery in the onshore KG-ONN-2003/1 block in the Krishna - Godavari basin. Testing is underway and the discovery will be appraised further for establishing commerciality. At the current market price of Rs. 339.15, the stock is fairly valued at 5.3 x EV/EBIDTA and trading at a PE of 6.00 x FY13E. The company can post Earnings per share (EPS) of Rs. 44.40 in FY12E and Rs. 56.70 in FY13E. One can buy CAIRN INDIA Ltd with a target price of Rs. 370.00 for Medium to Long term investment. CAIRN INDIA to declare its results on April 20th 2012.

SOTP valuation (FY2013E)

BUSINESS SUBSIDIARY (FY13E)	Value per Share (Rs.)
MBA (DCF)	286.00
Ravva and Cambay basin (EV/BOE 11x)	9.00
Barmer Hills (EV/BOE 8x - 50% disc. to MBA)	11.00
Other exploratory (EV/BOE 4x-75% disc. to MBA)	36.00
TOTAL EV	342.00
NET DEBT	(25.00)
EQUITY VALUE (Rs.)	367.00

KEY FINANCIALS	FY11	FY12E	FY13E	FY14E
SALES (Rs. Crs)	10,277.90	13,013.50	16,429.90	16,399.90
NET PROFIT (Rs. Crs)	6,334.40	8,693.50	11,095.20	9,415.70
EPS (Rs.)	32.40	44.40	56.70	48.10
PE (x)	10.90	7.90	6.20	7.30
P/BV (x)	1.70	1.50	1.20	1.20
EV/EBITDA (x)	8.00	5.50	3.80	3.90
ROE (%)	17.10	19.80	21.20	16.50
ROCE (%)	16.30	19.10	20.50	16.20

I would buy CAIRN INDIA Ltd with a price target of Rs. 370 for Medium to Long term. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 312.00 on every purchase.
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Reliance Industries : A great wealth being created.

Scrip Code: 500325 / RELIANCE

CMP:  Rs. 992.05; Buy at Rs. 930 - Rs.950 for LT.
Short term Target: Rs. 1030.00, LT – Rs. 1350
Market Cap: Rs. 3,24,659.03 cr.
52 Week High/Low: Rs. 1149.70 / Rs. 885.10

Total Shares: 327,26,07,533 shares; Promoters : 146,39,23,343 shares – 44.73 %; Total Public holding : 58,60,93,502 shares – 17.91 %; Book Value: Rs. 392.21; Face Value: Rs. 10.00; EPS: Rs. 59.95; Div: 70 % ; P/E: 16.54 times; Ind P/E: 17.80; EV/EBITDA: 11.72 .

Total Debt: Rs. 62536.25 cr; Enterprise Value: Rs. 3,87,195.28 cr

Reliance Industries out put is of 1.8 bn cubic feet of gas a day which is equal to 1,25,000 barrels of oil production per day a nearly 40 % of India’s total gas production, all comes from D6. RIL owns 2,7o,000 Sq Kilometers of exploration circles or 28 blocks.

British Petroleum (BP) global oil major has announced an historic deal with India’s largest private sector oil major Reliance Industries to buy RIL’s 30% stake in 23 oil and gas blocks on 21^st February 2011. As per the partnership deal, BP will buy 30% stake in 23 oil & gas production sharing contracts that RIL operates in India, including the producing KG-D6 blocks at $7.2 billion (Rs.44.99/$) Rs. 32400 cr, and will also form 50:50 JV for sourcing and marketing gas in India. This JV is also an attempt to accelerate the creation of infrastructure for receiving, transporting and marketing natural gas in India. RIL will get $7.2bn in 3 trenches - $2 bn as upfront payment, further $2.3 bn on completion of deal & the final payment of $3 bn in October 2011. BP could invest US $20bn in RIL which would go to Reliance Gas Transportation Infrastructure Ltd. This deal is positive for RIL as the combined expertise of both the parties would result into optimisation of producing blocks and enhancing the resources in exploratory blocks. The transaction amount gives a value of Rs. 363/share to the east coast blocks, as BP is expected to incrementally incur its share of capital expenditure into the commercialisation and development of blocks, which have already been factored in for valuation.

Outlook and Valuation

The deal is an earnings & value accretive in the long term, considering the technical expertise BP brings on table. Once the deal goes through, dip in valuation on account of shedding 30% share in east coast blocks will be offset by cash consideration and re-rating of blocks on account of synergy arising out technical expertise of both the proficient parties. This deal will put RIL in a position to be “DEBT FREE”. My view on the stock is of BUY with a price target of Rs. 1,160 when the share price is at Rs. 957.00

Y/E March (Rs. Cr)	2009	2010	2011E	2012E
SALES (Rs. crs)	1,51,224	2,03,740	2,43,815	2,83,665
NET PROFIT (Rs. crs)	14,969	15,897	19,835	22,305
EPS (Rs.)	50.3	53.4	66.6	74.9
PE (x)	19.0	17.9	14.4	12.8
PRICE/BOOK (x)	2.3	2.0	1.8	1.6
EV/EBITDA (x)	15.6	11.8	9.3	8.1

Evaluation of RIL’s east coast blocks

Prospective Basins	Estimated 2P Reserves (mmboe)
KG - Basin	2,413
MA - Oil	150
NEC - 25	793
D3	884
D9	512
Total	4,751
Value given by British Petro.
Deal Value (Rs. Cr @ Rs. 45/$)	1,08,000
EV/Share (Rs.)	363

Union Budget 2011-12 -

In this budget finance minister proposed the Minimum Alternate Tax (MAT) on Special Economic Zones (SEZ) & Limited Liability Partnership (LLP) from 1^st April 2012. LLPs will have to pay MAT at 18.5 % but will be exempted from Dividend Distribution Tax of 17 % on the dividend declared. In LLPs MAT will be known as Alternate Minimum Tax (AMT). AMT will be applicable to LLPs @ 18.5 % AMT will apply to the adjusted income & not on adjusted book profit. AMT credit is available to an LLP for 10 years. The LLPs was used by some promoters of cooperates to save tax on dividends declared by their companies. RIL promoters created 29 LLPs in August 2010 which will own 32.75 % of Reliance Industries. These 29 LLPs collectively earned Rs.750.77 cr as dividend last year saving both MAT & DDT.  But when the new AMT norm becomes affective these LLPs will have to pay tax of Rs.139 cr if the RIL maintains the same dividend rates.

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