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2QFY12 results
Cairn’s 2QFY12 net fell 72%QoQ to Rs7.6bn dragged down by the expected one
time prior period royalty adjustment in Rajasthan. We cut FY12/13 EPS by 2/4%
to model 2/5kbpd lower output to factor potential constraints in pipeline capacity
beyond 175kbpd. Nonetheless, greater alignment with the government and ONGC
after Cairn’s agreement to bear royalty and cess should allow it to accelerate
monetization of the ~6.5bn boe Rajasthan resource; higher production approvals
and clarity on exploration spends will be triggers. The completion of the deal with
Vedanta should also allow Cairn to offer clarity on use of cash and growth options
beyond Rajasthan. Maintain O-PF with US$90/bbl Brent DCF target of Rs335/sh.
2QFY12 net profit came marginally lower than our estimate
Cairn’s 2QFY12 PAT fell 72%QoQ to Rs7.6bn and came 3% below our estimate. As
expected, the one time charge (Rs13.6bn) on Rajasthan royalty related to FY10-11
was a drag on profits. Ebitda (Rs21bn, -34%QoQ) came 3% below estimate as larger
than expected profit sharing with the government (Rs1.6bn, 20% of profit oil) was only
partially offset by higher than expected Rajasthan crude realizations (US$101.6/bbl,
~10% discount to Brent). Reported profit came below our estimate as lower than
expected DDA and higher forex gain (Rs5.3bn) on cash held in US$ were negated by a
one time charge (Rs830m) on pre-paid US$ loan facility and higher tax rate (11.9%).
Mangala ready for 150kbpd; Bhagyam to start before end-2011
Cairn is on track to commence production at Bhagyam before end of 2011. However,
government is yet to sign off on the FY12 production budget – a pre-requisite for start
of production. This should follow, though, after the formal consummation of Vedanta’s
acquisition over the coming weeks. Cairn reiterated that surface facilities are also
ready to support an immediate increase in Mangala production from 125kbpd to
150kbpd. With approvals, Rajasthan output could rise beyond 175kbpd by end FY12.
Approvals for higher peak output and pipeline capacity could be bottlenecks
In the post result conference call, management also indicated that while they were
hopeful of being allowed to increase peak output at Mangala to 150kbpd from the
currently approved 125kbpd without filing a revised FDP, similar approvals for
Bhagyam (40kbpd approved) and Aishwarya (10kbpd) may be more time consuming
as they may require revised FDPs. Since capex approval to expand pipeline capacity
beyond 175kbpd is also likely only after government approvals for a higher peak
production, pipeline capacity may prove to be a constraint in 2012. We have lower our
FY12/13 Rajasthan output by 2/5kbpd to 145/179kbpd resulting in a 2/4% EPS cut.
We like Cairn’s long term fundamentals. Maintain O-PF (+14%)
Although approvals to increase peak production at the three Rajasthan fields will be
important milestones, we are encouraged by Cairn’s guidance to achieve full potential
production by 2013. We remain constructive on Cairn’s long term potential (resource,
output growth, cashflow); the change in contract will finally align Cairn with the
government (cess) and ONGC (royalty) to exploit its full potential. Maintain O-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
2QFY12 results
Cairn’s 2QFY12 net fell 72%QoQ to Rs7.6bn dragged down by the expected one
time prior period royalty adjustment in Rajasthan. We cut FY12/13 EPS by 2/4%
to model 2/5kbpd lower output to factor potential constraints in pipeline capacity
beyond 175kbpd. Nonetheless, greater alignment with the government and ONGC
after Cairn’s agreement to bear royalty and cess should allow it to accelerate
monetization of the ~6.5bn boe Rajasthan resource; higher production approvals
and clarity on exploration spends will be triggers. The completion of the deal with
Vedanta should also allow Cairn to offer clarity on use of cash and growth options
beyond Rajasthan. Maintain O-PF with US$90/bbl Brent DCF target of Rs335/sh.
2QFY12 net profit came marginally lower than our estimate
Cairn’s 2QFY12 PAT fell 72%QoQ to Rs7.6bn and came 3% below our estimate. As
expected, the one time charge (Rs13.6bn) on Rajasthan royalty related to FY10-11
was a drag on profits. Ebitda (Rs21bn, -34%QoQ) came 3% below estimate as larger
than expected profit sharing with the government (Rs1.6bn, 20% of profit oil) was only
partially offset by higher than expected Rajasthan crude realizations (US$101.6/bbl,
~10% discount to Brent). Reported profit came below our estimate as lower than
expected DDA and higher forex gain (Rs5.3bn) on cash held in US$ were negated by a
one time charge (Rs830m) on pre-paid US$ loan facility and higher tax rate (11.9%).
Mangala ready for 150kbpd; Bhagyam to start before end-2011
Cairn is on track to commence production at Bhagyam before end of 2011. However,
government is yet to sign off on the FY12 production budget – a pre-requisite for start
of production. This should follow, though, after the formal consummation of Vedanta’s
acquisition over the coming weeks. Cairn reiterated that surface facilities are also
ready to support an immediate increase in Mangala production from 125kbpd to
150kbpd. With approvals, Rajasthan output could rise beyond 175kbpd by end FY12.
Approvals for higher peak output and pipeline capacity could be bottlenecks
In the post result conference call, management also indicated that while they were
hopeful of being allowed to increase peak output at Mangala to 150kbpd from the
currently approved 125kbpd without filing a revised FDP, similar approvals for
Bhagyam (40kbpd approved) and Aishwarya (10kbpd) may be more time consuming
as they may require revised FDPs. Since capex approval to expand pipeline capacity
beyond 175kbpd is also likely only after government approvals for a higher peak
production, pipeline capacity may prove to be a constraint in 2012. We have lower our
FY12/13 Rajasthan output by 2/5kbpd to 145/179kbpd resulting in a 2/4% EPS cut.
We like Cairn’s long term fundamentals. Maintain O-PF (+14%)
Although approvals to increase peak production at the three Rajasthan fields will be
important milestones, we are encouraged by Cairn’s guidance to achieve full potential
production by 2013. We remain constructive on Cairn’s long term potential (resource,
output growth, cashflow); the change in contract will finally align Cairn with the
government (cess) and ONGC (royalty) to exploit its full potential. Maintain O-PF.
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