Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn India (CAIR)
Energy
A nice start in Sri Lanka but other factors more critical. We see the recent gas
discovery in Cairn’s SL 2007-01-001 block as a boost to confidence in the potential of
Cairn’s E&P portfolio. However, we would await further drilling and appraisal work to
assess the size of the discovery. We expect near-term stock performance to be driven by
(1) crude oil prices and (2) ramp-up of production from the Rajasthan block. We
maintain our REDUCE rating on Cairn India stock with a DCF-based target price of
`295. Key upside risks to our view stem from (1) higher-than-expected crude oil prices
in the long term and (2) higher recovery from the key Rajasthan block.
First discovery in Sri Lanka block
Cairn India has announced its first gas discovery in SL 2007-01-001 block in Mannar Basin. The
management has indicated a gross hydrocarbon column of 25 meters and net pay of 15 meters.
The commerciality of this discovery, which includes gas and liquid hydrocarbons, will be
established on further drilling of the well. The company has planned to drill two more wells in the
block by end-CY2011. We see the positive results in Sri Lanka as giving confidence on the
prospectively of Cairn’s E&P portfolio. However, we would await results from the remaining two
wells before making an assessment of the size/commerciality of the discovery. The management
has guided for an announcement regarding the commerciality of the discovery in early CY2012E.
Decline in crude oil price may not augur well for the stock in the near term
We highlight that the near-term performance of the stock will likely be driven by (1) crude oil
prices, (2) exchange rate movement and (3) ramp-up of production from its key Rajasthan block.
We see the near-term recent weakness in crude oil prices as negative for Cairn stock given that the
stock has historically shown strong correlation with crude oil prices historically barring the phase of
Cairn-Vedanta transaction (see Exhibit 1). We do not expect sharp rise in crude oil prices from
current levels given (1) easing of OPEC spare capacity from the restart of oil production in Libya,
(2) 1 mn b/d increase in non-OPEC supply in CY2012E and (3) likely weak global oil demand due
to subdued macro environment in the US and Europe currently. The impact of decline in crude oil
prices will be mitigated by weakening rupee to a certain extent. Exhibit 2 gives the sensitivity of
Cairn’s earnings to exchange rate and crude oil price assumption.
Maintain REDUCE with a target price of `295
We maintain our REDUCE rating on Cairn India stock with a DCF-based target price of `295. We
note that the stock has corrected by 17% in the past three months. However, we would await
better entry points given limited upside of 9% to our target price from current levels
Ramp-up of production from the key Rajasthan block will be critical
We note that production from Cairn’s Rajasthan block has been stagnant at 125,000 b/d
from 2QFY11 given the impending Cairn-Vedanta deal. We note that the company has
guided for (1) ramp-up of oil production from Mangala to 150,000 versus 125,000 b/s
presently and (2) commencement of production from Bhagyam field in 2HCY11 with a peak
production of 40,000 by end-CY2011E.
Earnings revision for FY2012E
We have revised our FY2012E EPS estimate for Cairn India to `40.4 from `45.8 previously to
reflect (1) one-time provision of `13.7 bn for Cairn’s share of royalty for FY2010-11 and (2)
change in our FY2012E exchange rate assumption to `46.3/US$ from `44.75/US$ previously.
Our FY2013E and FY2014E EPS for Cairn India decline modestly by ~1% to `49.3 and `40.3
to reflect lower other income due to lower cash balances.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn India (CAIR)
Energy
A nice start in Sri Lanka but other factors more critical. We see the recent gas
discovery in Cairn’s SL 2007-01-001 block as a boost to confidence in the potential of
Cairn’s E&P portfolio. However, we would await further drilling and appraisal work to
assess the size of the discovery. We expect near-term stock performance to be driven by
(1) crude oil prices and (2) ramp-up of production from the Rajasthan block. We
maintain our REDUCE rating on Cairn India stock with a DCF-based target price of
`295. Key upside risks to our view stem from (1) higher-than-expected crude oil prices
in the long term and (2) higher recovery from the key Rajasthan block.
First discovery in Sri Lanka block
Cairn India has announced its first gas discovery in SL 2007-01-001 block in Mannar Basin. The
management has indicated a gross hydrocarbon column of 25 meters and net pay of 15 meters.
The commerciality of this discovery, which includes gas and liquid hydrocarbons, will be
established on further drilling of the well. The company has planned to drill two more wells in the
block by end-CY2011. We see the positive results in Sri Lanka as giving confidence on the
prospectively of Cairn’s E&P portfolio. However, we would await results from the remaining two
wells before making an assessment of the size/commerciality of the discovery. The management
has guided for an announcement regarding the commerciality of the discovery in early CY2012E.
Decline in crude oil price may not augur well for the stock in the near term
We highlight that the near-term performance of the stock will likely be driven by (1) crude oil
prices, (2) exchange rate movement and (3) ramp-up of production from its key Rajasthan block.
We see the near-term recent weakness in crude oil prices as negative for Cairn stock given that the
stock has historically shown strong correlation with crude oil prices historically barring the phase of
Cairn-Vedanta transaction (see Exhibit 1). We do not expect sharp rise in crude oil prices from
current levels given (1) easing of OPEC spare capacity from the restart of oil production in Libya,
(2) 1 mn b/d increase in non-OPEC supply in CY2012E and (3) likely weak global oil demand due
to subdued macro environment in the US and Europe currently. The impact of decline in crude oil
prices will be mitigated by weakening rupee to a certain extent. Exhibit 2 gives the sensitivity of
Cairn’s earnings to exchange rate and crude oil price assumption.
Maintain REDUCE with a target price of `295
We maintain our REDUCE rating on Cairn India stock with a DCF-based target price of `295. We
note that the stock has corrected by 17% in the past three months. However, we would await
better entry points given limited upside of 9% to our target price from current levels
Ramp-up of production from the key Rajasthan block will be critical
We note that production from Cairn’s Rajasthan block has been stagnant at 125,000 b/d
from 2QFY11 given the impending Cairn-Vedanta deal. We note that the company has
guided for (1) ramp-up of oil production from Mangala to 150,000 versus 125,000 b/s
presently and (2) commencement of production from Bhagyam field in 2HCY11 with a peak
production of 40,000 by end-CY2011E.
Earnings revision for FY2012E
We have revised our FY2012E EPS estimate for Cairn India to `40.4 from `45.8 previously to
reflect (1) one-time provision of `13.7 bn for Cairn’s share of royalty for FY2010-11 and (2)
change in our FY2012E exchange rate assumption to `46.3/US$ from `44.75/US$ previously.
Our FY2013E and FY2014E EPS for Cairn India decline modestly by ~1% to `49.3 and `40.3
to reflect lower other income due to lower cash balances.
No comments:
Post a Comment