Cairn India - 2QFY11: Production ramp up on track :: UBS

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UBS Investment Research
Cairn India Limited
2QFY11: Production ramp up on track
􀂄 Results in line with expectations
Cairn India reported a PAT of Rs 15.85bn for Q2FY11 (UBS estimate Rs
16.46bn), +238% YoY and up more than five times QoQ driven by higher
production from Rajasthan block. EBITDA at Rs 21.3bn grew 247% QoQ. The
production has been as per UBS expectation. The average realisation for Rajasthan
fields was US$ 67.8/bbl, a 10% average discount to Brent.
􀂄 Good progress on Mangala production: reached the approved 125 kbopd
Mangala field production has ramped up to the currently approved 125kbopd and
the average production during the quarter ended 30 Sept 2010 was 116 kbopd. Of
the total planned development capex of US$4.4bn on Rajasthan till end 2011, the
company has till date spent US$ 2.625 bn.
􀂄 Exploratory drilling to pick up post approvals
Cairn needs approvals from JV partners and the govt. for an increase in production
levels. Cairn’s production guidance for MBA fields is 175bopd by Dec 2011vs.
UBS FY12e of 180kbopd. Given the Mangala field is relatively young opex was
low at US$2//bbl vs. US$3.5/bbl in the steady state. Cairn reported a lower tax
number based on an effective tax rate of 8.5% due to prior year tax credit.
􀂄 Valuation: sum-of-the-parts-based price target of Rs355.00
Our sum-of-the-parts-based price target comprises: 1) DCF for producing fields at
Rajasthan; 2) contingent reserves valued at EV/boe; 3) exploratory upside-valued
at EV/boe; and 4) other smaller producing fields. We estimate relatively little
upside from current levels.