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Cairn India Ltd. (CAIL.BO)
Buy Equity Research
In line with expectations: Production ramp-up imminent; Buy
What surprised us
Cairn India reported 2QFY12 net profit of Rs7.6 bn, largely in line with our
estimate of Rs7.2bn. Higher-than-expected one-time royalty adjustment of
Rs17.6bn (vs GSe of Rs13.5bn) and non-recurring financial charges of
Rs0.8bn were largely offset by forex gain of Rs5.3bn. Cairn India guided
that going forward, royalty would account for about 15% of gross
revenues. Mangala production averaged 125K b/d, in line with our
estimate, and oil price realization was US$102.8/bbl, a 9% discount to
Brent. While Rajasthan operating costs came in at US$2.5/bbl, the
company kept its long-term cost guidance at US$5/bbl, as workover costs
will likely add to operating costs going forward. Management said that
Bhagyam production would commence soon and it expects to exit FY12 at
a production rate of 175Kbpd. It added that it now expects a significant
part of the 240Kpbd peak production to be met by the MBA fields, and
processing and pipeline infrastructure is being planned for the same.
What to do with the stock
With the prior-period royalty adjustments now completed, the coming
quarters should reflect Cairn India’s sustainable earnings profile. Given
Bhagyam production ramp-up in the near term, we forecast growth of Cairn’s
production volumes by 2X between FY11-FY14E and estimate Rajasthan gross
oil volumes to reach 175 Kb/d by March 2012 and peak at 215 K b/d by Dec
2012 from the current 125Kb/d – one of the best growth profiles among the
emerging market “oily” stocks. We reiterate our 12-m NAV-based TP of Rs351,
implying 19% upside potential. We estimate that Cairn stock is currently
implying long-term Brent price of US$72/bbl from FY13E onwards. Key risks:
Delay in production ramp-up, adverse regulatory developments.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn India Ltd. (CAIL.BO)
Buy Equity Research
In line with expectations: Production ramp-up imminent; Buy
What surprised us
Cairn India reported 2QFY12 net profit of Rs7.6 bn, largely in line with our
estimate of Rs7.2bn. Higher-than-expected one-time royalty adjustment of
Rs17.6bn (vs GSe of Rs13.5bn) and non-recurring financial charges of
Rs0.8bn were largely offset by forex gain of Rs5.3bn. Cairn India guided
that going forward, royalty would account for about 15% of gross
revenues. Mangala production averaged 125K b/d, in line with our
estimate, and oil price realization was US$102.8/bbl, a 9% discount to
Brent. While Rajasthan operating costs came in at US$2.5/bbl, the
company kept its long-term cost guidance at US$5/bbl, as workover costs
will likely add to operating costs going forward. Management said that
Bhagyam production would commence soon and it expects to exit FY12 at
a production rate of 175Kbpd. It added that it now expects a significant
part of the 240Kpbd peak production to be met by the MBA fields, and
processing and pipeline infrastructure is being planned for the same.
What to do with the stock
With the prior-period royalty adjustments now completed, the coming
quarters should reflect Cairn India’s sustainable earnings profile. Given
Bhagyam production ramp-up in the near term, we forecast growth of Cairn’s
production volumes by 2X between FY11-FY14E and estimate Rajasthan gross
oil volumes to reach 175 Kb/d by March 2012 and peak at 215 K b/d by Dec
2012 from the current 125Kb/d – one of the best growth profiles among the
emerging market “oily” stocks. We reiterate our 12-m NAV-based TP of Rs351,
implying 19% upside potential. We estimate that Cairn stock is currently
implying long-term Brent price of US$72/bbl from FY13E onwards. Key risks:
Delay in production ramp-up, adverse regulatory developments.
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