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CAIR’s Q3 earnings beat our estimate due to rising crude price and reduction
in cost of production. We now forecast EPS of Rs33.3 for FY11 (61% achieved
in M9) and Rs49.7 for FY12. On its Q3 earnings call, CAIR stated that its
production plan for FY12 is unchanged and it would not pay any royalty to
facilitate its takeover by Vedanta. A decision on the takeover bid, possibly
within the next 6 weeks, will remove uncertainty, prompting investors to
take notice of the cheap valuation of the stock. We maintain our TP of
Rs448/sh based on PER of 9x FY12F.
Oil fields operating near full capacity, capacity to increase soon
M9 production volume of 19m bbl (+285% Y/Y) is in line with our estimate. Q3
revenue grew 14% Q/Q, mainly on the back of increase in crude price. For
FY12, we forecast production of 45m bbl, 16% higher than our earlier estimate
of 39m bbl, because CAIR confirmed additional production of 13.4m bbl in
2011 from the Rajasthan field. FY12F selling price of oil should be US$82/bbl,
at a 10% discount to our spot crude price assumption.
Q3 gross profit of US$53.5/bbl is 14% above our estimate
Gross profit increased in Q3FY11 as a result of rising crude price and reduction
in production cost to US$20.8/bbl (from US$21.6/bbl in Q2), which was below
CAIR’s guidance.
Q4 EPS to rise 22% Q/Q, CAIR to repay debt and fund CAPEX via free cash
We are confident that CAIR will achieve 39% of our FY11F earnings in Q4 due
to cost savings of US$1/bbl (from US$20.8/bbl in Q3) and rising interest
income from increasing surplus cash. In Q3, CAIR generated free CF for the first
time in FY11 (US$194m). We expect free CF to increase to US$1.9bn in FY12,
which would be sufficient to fund its CAPEX of US$1bn.
CAIR to make decision this quarter on takeover, re‐rating seems imminent
Investors think the gov’t will approve CAIR’s takeover by Vedanta and impose
a new royalty charge on the company. CAIR is confident that the approval
would come by March without a royalty fee being imposed. CAIR trades at an
unjustified discount of 25% vs. ONGC and 43% vs. Asian peers on FY12F
earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CAIR’s Q3 earnings beat our estimate due to rising crude price and reduction
in cost of production. We now forecast EPS of Rs33.3 for FY11 (61% achieved
in M9) and Rs49.7 for FY12. On its Q3 earnings call, CAIR stated that its
production plan for FY12 is unchanged and it would not pay any royalty to
facilitate its takeover by Vedanta. A decision on the takeover bid, possibly
within the next 6 weeks, will remove uncertainty, prompting investors to
take notice of the cheap valuation of the stock. We maintain our TP of
Rs448/sh based on PER of 9x FY12F.
Oil fields operating near full capacity, capacity to increase soon
M9 production volume of 19m bbl (+285% Y/Y) is in line with our estimate. Q3
revenue grew 14% Q/Q, mainly on the back of increase in crude price. For
FY12, we forecast production of 45m bbl, 16% higher than our earlier estimate
of 39m bbl, because CAIR confirmed additional production of 13.4m bbl in
2011 from the Rajasthan field. FY12F selling price of oil should be US$82/bbl,
at a 10% discount to our spot crude price assumption.
Q3 gross profit of US$53.5/bbl is 14% above our estimate
Gross profit increased in Q3FY11 as a result of rising crude price and reduction
in production cost to US$20.8/bbl (from US$21.6/bbl in Q2), which was below
CAIR’s guidance.
Q4 EPS to rise 22% Q/Q, CAIR to repay debt and fund CAPEX via free cash
We are confident that CAIR will achieve 39% of our FY11F earnings in Q4 due
to cost savings of US$1/bbl (from US$20.8/bbl in Q3) and rising interest
income from increasing surplus cash. In Q3, CAIR generated free CF for the first
time in FY11 (US$194m). We expect free CF to increase to US$1.9bn in FY12,
which would be sufficient to fund its CAPEX of US$1bn.
CAIR to make decision this quarter on takeover, re‐rating seems imminent
Investors think the gov’t will approve CAIR’s takeover by Vedanta and impose
a new royalty charge on the company. CAIR is confident that the approval
would come by March without a royalty fee being imposed. CAIR trades at an
unjustified discount of 25% vs. ONGC and 43% vs. Asian peers on FY12F
earnings.
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