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India Equity Research Reports, IPO and Stock News
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3QFY11 results were 10% above expectations due to lower interest and tax (operationally inline).
Medium-term outlook is driven by ongoing takeover news flow and hence Board statement
regarding non-acceptance of any negative conditions is very encouraging.
CIL management confirmed that there were no written statements/letters from the Indian
government (GOI) regarding its concerns or conditions regarding the proposed sale of CIL
stake by Cairn Energy to Vedanta. There have been only verbal discussions to date and CIL
management believed that, given its track record within India, it was hopeful for a positive
outcome.
The most heartening feature of the results press release was the Board commitment to
minority shareholders. To quote the release, "The Cairn India board of directors has stated
that any condition tied to the approval of the transaction, which can negatively impact the
value of the company cannot be accepted". Negative changes to the production sharing
contract (PSC) has been the main overhang on CIL stock price. We believe that no change in
the PSC can be implemented without the consent of CIL Board and hence the public
commitment from the Board augurs well for minority shareholders.
On the operational front, Cairn India (CIL) production numbers, sales value and EBITDA were
in line with expectations. Lower interest and tax charges resulted in net profits at Rs20.1bn
(up 590% yoy) coming in 10% above expectations. CIL has moved from a net debt of
Rs7.7bn at end-2QFY11 to net cash of Rs8.7bn at end-3QFY11, which explains the lower
interest charge. Total effective tax rate was 9% (same as 2Q) but below company guidance of
10-15%.
Capex guidance remains at US$1.2bn in CY11. Given strong cash flows from existing
production, CIL now looks set to remain in net cash position given the current capex plans.
Management is yet to provide any guidance on use of cash, but post the completion of the
takeover deal (or even otherwise), we would expect some clarity on this issue within 3-6
months.
In 3QFY11, gross Rajasthan production was at peak approved capacity of 124,861 b/d (up
7.6% yoy). Crude realisation was US$74.8/bbl, a 13.5% discount to Brent, with discounts
having widened qoq (10% in 2QFY11) due to higher differentials between heavy/sour and
sweet/light crudes. Cash opex for Rajasthan was US$2.7/bbl (US$2/bbl for upstream and
US$0.7/bbl for pipeline).
Bhagyam production is expected to start in 2HCY11 and reach its approved capacity of 40kbd
by end-CY11. CIL has maintained its guidance of exiting CY11 at 175kbd. To achieve this
level, we believe that the government approval to raise Mangala production from 125kbd to
150kbd would need to be received in 3QCY11.
The only negative takeaway from the results feedback is that Aishwariya production has been
pushed back from 1HCY12 to 2HCY12. Assessment of higher production potential is currently
underway due to increased reserves and resources (company guidance 20kbd as against
current approved number of 10kbd).
On the exploration front, drilling in the Sri Lanka block is set to commence in July 2011. A
drillship has been contracted and logistical preparations and detailed studies are ongoing
ahead of drilling.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
3QFY11 results were 10% above expectations due to lower interest and tax (operationally inline).
Medium-term outlook is driven by ongoing takeover news flow and hence Board statement
regarding non-acceptance of any negative conditions is very encouraging.
CIL management confirmed that there were no written statements/letters from the Indian
government (GOI) regarding its concerns or conditions regarding the proposed sale of CIL
stake by Cairn Energy to Vedanta. There have been only verbal discussions to date and CIL
management believed that, given its track record within India, it was hopeful for a positive
outcome.
The most heartening feature of the results press release was the Board commitment to
minority shareholders. To quote the release, "The Cairn India board of directors has stated
that any condition tied to the approval of the transaction, which can negatively impact the
value of the company cannot be accepted". Negative changes to the production sharing
contract (PSC) has been the main overhang on CIL stock price. We believe that no change in
the PSC can be implemented without the consent of CIL Board and hence the public
commitment from the Board augurs well for minority shareholders.
On the operational front, Cairn India (CIL) production numbers, sales value and EBITDA were
in line with expectations. Lower interest and tax charges resulted in net profits at Rs20.1bn
(up 590% yoy) coming in 10% above expectations. CIL has moved from a net debt of
Rs7.7bn at end-2QFY11 to net cash of Rs8.7bn at end-3QFY11, which explains the lower
interest charge. Total effective tax rate was 9% (same as 2Q) but below company guidance of
10-15%.
Capex guidance remains at US$1.2bn in CY11. Given strong cash flows from existing
production, CIL now looks set to remain in net cash position given the current capex plans.
Management is yet to provide any guidance on use of cash, but post the completion of the
takeover deal (or even otherwise), we would expect some clarity on this issue within 3-6
months.
In 3QFY11, gross Rajasthan production was at peak approved capacity of 124,861 b/d (up
7.6% yoy). Crude realisation was US$74.8/bbl, a 13.5% discount to Brent, with discounts
having widened qoq (10% in 2QFY11) due to higher differentials between heavy/sour and
sweet/light crudes. Cash opex for Rajasthan was US$2.7/bbl (US$2/bbl for upstream and
US$0.7/bbl for pipeline).
Bhagyam production is expected to start in 2HCY11 and reach its approved capacity of 40kbd
by end-CY11. CIL has maintained its guidance of exiting CY11 at 175kbd. To achieve this
level, we believe that the government approval to raise Mangala production from 125kbd to
150kbd would need to be received in 3QCY11.
The only negative takeaway from the results feedback is that Aishwariya production has been
pushed back from 1HCY12 to 2HCY12. Assessment of higher production potential is currently
underway due to increased reserves and resources (company guidance 20kbd as against
current approved number of 10kbd).
On the exploration front, drilling in the Sri Lanka block is set to commence in July 2011. A
drillship has been contracted and logistical preparations and detailed studies are ongoing
ahead of drilling.
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