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EARNINGS REVIEW
Cairn India Ltd. (CAIL.BO)
Buy Equity Research
In line with expectations; Cairn reassures shareholders on Vedanta
What surprised us
Cairn India reported 3QFY11 adjusted net profit of Rs20.1 bn, up 25% qoq,
and largely in line with our estimate of Rs19.8 bn. During 3Q, Mangala
production averaged 124.9K b/d, in line with our estimate of 125K b/d. Oil
price realization was at a higher discount of 13% to Brent, on account of
the widening light heavy spread vs. our assumption of 15%. While
Rajasthan operating costs came in at US$2.7/bbl, the company kept its cost
guidance at US$5/bbl, as workover costs will likely add to operating costs
going forward.
Cairn India management said on the post-results conference call that the
Vedanta Cairn deal has been “an overarching issue” that has, to some
extent, impacted the otherwise likely faster-than-expected ramp-up in
production. However, it assured that the Cairn India Board has taken a
clear and definitive stand to not accept any unreasonable conditions that
could have a negative impact on shareholder value. As such, management
further clarified that it has not received any pre-conditions for the deal in
writing from the government.
What to do with the stock
We maintain our Buy rating on Cairn India with 12-month NAV-based TP of
Rs395, implying upside of 26%. The stock currently implies long-term
Brent of US$76/bbl from FY12E onwards. We estimate Cairn to generate
annual free cash flow of US$2.5bn-US$3.0bn from FY12E onwards. Key
risks: 1) Delay in Rajasthan production ramp-up; 2) any adverse regulatory
developments
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Cairn India Ltd. (CAIL.BO)
Buy Equity Research
In line with expectations; Cairn reassures shareholders on Vedanta
What surprised us
Cairn India reported 3QFY11 adjusted net profit of Rs20.1 bn, up 25% qoq,
and largely in line with our estimate of Rs19.8 bn. During 3Q, Mangala
production averaged 124.9K b/d, in line with our estimate of 125K b/d. Oil
price realization was at a higher discount of 13% to Brent, on account of
the widening light heavy spread vs. our assumption of 15%. While
Rajasthan operating costs came in at US$2.7/bbl, the company kept its cost
guidance at US$5/bbl, as workover costs will likely add to operating costs
going forward.
Cairn India management said on the post-results conference call that the
Vedanta Cairn deal has been “an overarching issue” that has, to some
extent, impacted the otherwise likely faster-than-expected ramp-up in
production. However, it assured that the Cairn India Board has taken a
clear and definitive stand to not accept any unreasonable conditions that
could have a negative impact on shareholder value. As such, management
further clarified that it has not received any pre-conditions for the deal in
writing from the government.
What to do with the stock
We maintain our Buy rating on Cairn India with 12-month NAV-based TP of
Rs395, implying upside of 26%. The stock currently implies long-term
Brent of US$76/bbl from FY12E onwards. We estimate Cairn to generate
annual free cash flow of US$2.5bn-US$3.0bn from FY12E onwards. Key
risks: 1) Delay in Rajasthan production ramp-up; 2) any adverse regulatory
developments
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