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Cairn India Ltd
Results marginally better than expectation; Maintain SELL
Cairn India Ltd (Cairn) 2QFY11 PAT at Rs 15.8bn (+237%YoY and
+463%QoQ) was marginally better than our expectations (Rs 15.3bn) due to
higher average oil production of 116 kbopd at MBA field, Rajasthan. Other key
highlights for the quarter include a) ramp up in production at Mangala field to
125 kbopd and b) on track development plan for Bhagyam and Aishwarya field
with 4th processing terminal likely to be commissioned by H2CY11.
We continue to maintain our SELL recommendation on the stock due to a) our
long term crude price outlook of USD70/bbl while the stock is factoring in long
term crude oil price of USD81/bbl b) Vedanta Group – Cairn Plc deal overhang.
However, we are revising our TP to Rs 285/share (Rs 250/share earlier) to
factor in higher plateau production of 210 kbopd at MBA fields (against our
earlier assumption of 185 kbopd).
Higher sales boost revenues : The higher sales at 93 kboepd (+172% QoQ and
500% YoY) was backed by production ramp up at Mangla field to 125 kboepd
post commissioning of processing terminal 2 & 3. The average gross production
during 2QFY11 from the Rajasthan block stood at 116kboepd, with Cairn
guiding for higher production of 150kboepd subject to approval of GoI. The
direct operating costs and pipeline transportation costs for Mangala field during
this quarter stood at USD 2/bbl and 0.5/bbl respectively.
MBA project is on track: The MBA project is on track with 4th processing
terminal likely to be commissioned by H2CY11. Also, the production from
Bhagyam field is likely to be commissioned by H2CY11. Cairn expects to end
CY11 at 175 kbopd production (150 kbopd from Managla and 25 kbopd from
Bhagyam). Other than this, the first phase of enhanced oil recovery (EoR) drilling
program is complete and start-up injection tests have commenced. The MPT to
Salaya section (590km) of the pipeline is operational and work on the Salaya to
Bhogat section (80km) is underway.
Submission of Barmer Hills FDP by H1CY11: A pilot project to test the potential
of Barmer Hill formation is likely to be commissioned at the beginning of next
year as a part of exploration budget for CY2011. Post that, Cairn is likely to
submit FDP for the field.
Maintain SELL with a TP of Rs 285/share: Not taking away the fact that Cairn is
an operationally sound organization and has delivered commendable results, we
believe that at current levels stock is overvalued and therefore we maintain our
SELL rating with a target price of Rs285/share.
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