Wednesday, 18 September 2013

Cairn India

I'm buying it from 280/-, one of the most undervalued shares from promising oil and gas sector. its pe ratio is around 4 as compared to 11-12 of ONGC (which is also low due to its subsidy share) mainly because of one reason...its dependency on single source for oil i.e. Rajasthan, which i feel is not justified and a bit overreacted.

cairn has also forayed into Sri lanka and Africa. it is looking for city gas distribution in rajasthan via JV with gail. It'll generate huge cash piles around 15000-20000 cr annualy...which are more than enough to grow further and distribute huge dividends.

India is planning for shale gas exploration in india, which will shape its energy portfolio the way it did for USA, and to fulfill that Cairn india/relaince ind and ONGC are the best fit.
I am already having ONGC from very low levels of 170/- and just recently picked reliance all the way from 850/- to 770/-
India's Current account Deficit is around 6.5% of its GDP, which is high. However high levels of CAD can be due to the fact that other countries are willing to credit us as they have faith in our growth story and can be adequately financed through long term foreign capital FDI inflow. But the absence of FDI inflow and currency devaluation (which at present is india) are dangerous signs.

In order to avoid it, there are two ways...either reduce your Import bill or increase your export bill. If india can't produce enough oil and Gas for its needs ( oil and gas accounts for 30% of indian import bill) then it should produce more wheat/Rice/Milk/Fruits and highly technical experts (for exporting services). But india is more than happy to let its Rice/wheat to rotten in its dirty warehouses in the name of food security ,instead of exporting it.

Although we are trying to counter this now by venturing into cold storage/Better yields and better transportation but another way is to develop our local energy sector. India is surrounded by sea from three sides which are sure to have huge oil and gas reserves along with sands of Rajasthan and Shale Gas reserves.

Hence this year can be great for oil and gas sector stocks. Govt is also looking for reforms in Oil and Gas pricing in india by increasing petrol/diesel/Gas  Prices, which i feel can be justified only in one way as it discourages us to spend less on petrol and diesel.

But there are much better ways to do this...we must and should develop best local city transport  via trains/Buses for our citizens at very low rates but with top quality services which will encourage people to leave their bikes/cars at home and use these instead, like it happens in all the developed countries. This will surely save a lot of Oil.

Govt should promote Bicycles more (it is good for health and Environment also) and give huge subsidy on Bicycles (It sounds funny, but can be an option).  Our universities can declare their premises as pollution free zones and encourage students to use cycles and Mass transport. I can’t remember the name of the country but i think it is Denmark, which has put great effort for the development of Bicycle culture in the country. It is one of the cleanest/Pollution free place in the world. 

Its capital, Copenhagen was elected Bike City as the first city ever. In Copenhagen 50% of all citizens commute by bike every day and there are more bikes than inhabitants. There are almost 400 kilometres of biking lanes among which you find the world’s busiest biking lane with up to 40.000 cyclist passing daily.

Though cycling is the cheapest mean of transportation next to walking Copenhageners love their bikes no matter their financial income. Many middle class families with kids in Copenhagen don't even own a car. They use their bikes to commute to work, bringing the kids to kindergarten etc. In fact 25 percent of all families with two kids in Copenhagen have a cargo bike.

Even top politicians ride their bike every day to parliament. A majority (63 percent) of the members of the Danish parliament commute by bike.


(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

Update: I have sold all of my holdings at around 305/- , some days after it approved a loan of around $1.25 billion to vedanta group companies at an interest rate of 3% above LIBOR for two years. I find it a big negative and it proves the apprehensions of corp gov standards in the group. so it is better to stay away from it and all the group stocks as well.

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