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01 November 2010
Cairn: Mangala ramp-up boosts 2Q FY11 profits: Daiwa
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Cairn India (CAIR IN) Rating:4
Mangala ramp-up boosts 2Q FY11 profits
What has changed?
• Cairn India’s (Cairn) 2Q FY11 results were in line with our forecasts, with a net
profit of Rs15.9bn, up 240% YoY and 463% QoQ. The net profit was boosted
by the ramp-up of the Mangala field and reduced operating costs.
Impact
• Cairn recorded 2Q FY11 revenue of Rs26.9bn, compared with Rs8.4bn for 1Q
FY11 and Rs2.3bn for 2Q FY10. The main ramp-up occurred at the Mangala
field, where production averaged 116,058bpd, versus 44,381 for 1Q FY11.
Overall production (net to Cairn) jumped from 47,400 boepd for 1Q FY11 to
94,316 boepd for the second quarter.
• Mangala has touched plateau production of 125,000 bpd. Cairn will apply early
next year for to boost its production to 150,000 bpd. Also, the Bhagyam field
will probably start production next year with a plateau of 40,000 bpd. However,
Cairn maintained its guidance of end-2011 production of 175,000 bpd.
• Management also clarified media reports that further exploration at the
Rajasthan block is planned for next year, for which budget approval will be
sought later. Focus for now will be on development of existing discoveries.
• Operating costs for Rajasthan were only US$2/bbl, compared with
management’s guidance of US$4/bbl. Costs are likely to increase over the
medium term once workover operations begin.
Valuation
• We maintain our six-month target price for Cairn of Rs287, based on our DCF
valuation, with assumptions of a WACC of 11.5% and a long-term oil price of
US$85/bbl.
Catalysts and action
• We maintain our 4 (Underperform) rating for Cairn. We believe the share price
should be driven in the near term by news flow about the announced Vedanta
(Not rated) takeover. We believe the proposed open-offer price of Rs355/share
is attractive, above our fair value, and that investors should tender their shares
to the offer.
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