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Cairn India reported net profit was 54% above expectations due forex gains, with operational
earnings in line. Company’s disclosures on constraints in crude evacuation infrastructure will
result in some cuts in our FY12-14 oil production estimates.
2Q reported net profit above expectations
Cairn India (CIL) reported 2QFY12 net profit of Rs7.64bn (down 48% yoy) which was 54%
above expectations largely due to forex gains of Rs5.3bn. These were on account of
translation gains on cash held overseas which we had not modelled for.
Up until 1QFY12, CIL had reported its financials assuming that royalty payments were not
cost recoverable. With CIL shareholders now agreeing to making its royalty cost recoverable,
CIL has made the necessary adjustments in 2QFY12 results. The impact of the royalty
adjustment for the period up to 1QFY12 has been shown as an exceptional item.
CIL’s reported revenues of Rs26.5bn (down 1.5% yoy) and EBITDA of Rs20.7bn (down 3%
yoy) were in line with our expectations. The exceptional hit to profits on account of the royalty
adjustment was Rs13.6bn was 4% above our expectations. This included adjustments upto
FY11 (around Rs1.3bn) which we had assumed would be adjusted against reserves but
which have been adjusted in current quarter profits.
Interest costs at Rs1.2bn were higher than our estimate of Rs400m as Rs0.8bn relating to
unamortized costs of forex loan was fully charged to profits since the loan has been fully
repaid.
Effective tax rate at 12% was higher than normal company guidance of 6-10% (our estimate
7% for 2Q) due to the exceptional charge.
Rajasthan gross crude production (125251kbd) and crude realization (US$101.6/bbl) were in
line with our expectations.
Infrastructure constraints to limit near-term production
Based on management guidance, we have assumed that Mangala production can be hiked
from 125kbd to 150kbd subject to approval of Indian government (GOI). Further, Bhagyam
can start producing this quarter and can ramp up to its approved plateau of 40kbd within two
months. Lastly, Aishwariya can start producing at 20kbd in 2HCY12 subject to GOI approval.
We had assumed approval for Bhagyam by end of this month, Mangala by end of December
and Aishwariya early next year. This would lead to production from the three (MBA) fields
averaging at 190kbd in 4QFY12 and 210kbd by 4QFY13.
CIL management however stated that infrastructure constraints (processing terminal and/or
pipeline) would limit the crude production to around 175kbd until CY13 (exact timing within
CY13 not specified). Further investments are planned to augment processing capacity and
pipeline infrastructure for which GOI approval would be required. Consequently, actual
production in CY12 would be limited to around 175kbd even if there is ability and GOI
approval to produce more.
If we assume that the infrastructure constraints would be resolved fully by mid-CY13, then our
gross production forecasts for Rajasthan could work out to 140kbd in FY12 (current estimate
144kbd), 175kbd in FY13 (198kbd) and 207kbd in FY14 (226kbd). All other assumptions
remaining constant, these lower production figures would lead to following changes in our
current EPS estimates – FY12 down 3%, FY13 down 14% and FY14 up 3% (as the slab of
30% GOI share in profit petroleum would be postponed by one year due to lower production)
Bullish on longer-term growth potential intact
Notwithstanding the near-term constraints on production growth, we remain very optimistic on
long-term potential on Rajasthan block. The fact that field development plans for MBA are
being revised should be viewed as a positive development in our view. We also continue to
believe that reserve estimate for MBA using enhanced oil recovery techniques (currently
assumed at 15% of in-place reserves) and the reserve estimate for non-MBA fields (7% of inplace
reserves) would move up significantly over time thereby supporting a higher plateau
production (over and above current guidance of 240kbd).
We would be revising our earnings estimates and releasing a more detailed note
subsequently.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn India reported net profit was 54% above expectations due forex gains, with operational
earnings in line. Company’s disclosures on constraints in crude evacuation infrastructure will
result in some cuts in our FY12-14 oil production estimates.
2Q reported net profit above expectations
Cairn India (CIL) reported 2QFY12 net profit of Rs7.64bn (down 48% yoy) which was 54%
above expectations largely due to forex gains of Rs5.3bn. These were on account of
translation gains on cash held overseas which we had not modelled for.
Up until 1QFY12, CIL had reported its financials assuming that royalty payments were not
cost recoverable. With CIL shareholders now agreeing to making its royalty cost recoverable,
CIL has made the necessary adjustments in 2QFY12 results. The impact of the royalty
adjustment for the period up to 1QFY12 has been shown as an exceptional item.
CIL’s reported revenues of Rs26.5bn (down 1.5% yoy) and EBITDA of Rs20.7bn (down 3%
yoy) were in line with our expectations. The exceptional hit to profits on account of the royalty
adjustment was Rs13.6bn was 4% above our expectations. This included adjustments upto
FY11 (around Rs1.3bn) which we had assumed would be adjusted against reserves but
which have been adjusted in current quarter profits.
Interest costs at Rs1.2bn were higher than our estimate of Rs400m as Rs0.8bn relating to
unamortized costs of forex loan was fully charged to profits since the loan has been fully
repaid.
Effective tax rate at 12% was higher than normal company guidance of 6-10% (our estimate
7% for 2Q) due to the exceptional charge.
Rajasthan gross crude production (125251kbd) and crude realization (US$101.6/bbl) were in
line with our expectations.
Infrastructure constraints to limit near-term production
Based on management guidance, we have assumed that Mangala production can be hiked
from 125kbd to 150kbd subject to approval of Indian government (GOI). Further, Bhagyam
can start producing this quarter and can ramp up to its approved plateau of 40kbd within two
months. Lastly, Aishwariya can start producing at 20kbd in 2HCY12 subject to GOI approval.
We had assumed approval for Bhagyam by end of this month, Mangala by end of December
and Aishwariya early next year. This would lead to production from the three (MBA) fields
averaging at 190kbd in 4QFY12 and 210kbd by 4QFY13.
CIL management however stated that infrastructure constraints (processing terminal and/or
pipeline) would limit the crude production to around 175kbd until CY13 (exact timing within
CY13 not specified). Further investments are planned to augment processing capacity and
pipeline infrastructure for which GOI approval would be required. Consequently, actual
production in CY12 would be limited to around 175kbd even if there is ability and GOI
approval to produce more.
If we assume that the infrastructure constraints would be resolved fully by mid-CY13, then our
gross production forecasts for Rajasthan could work out to 140kbd in FY12 (current estimate
144kbd), 175kbd in FY13 (198kbd) and 207kbd in FY14 (226kbd). All other assumptions
remaining constant, these lower production figures would lead to following changes in our
current EPS estimates – FY12 down 3%, FY13 down 14% and FY14 up 3% (as the slab of
30% GOI share in profit petroleum would be postponed by one year due to lower production)
Bullish on longer-term growth potential intact
Notwithstanding the near-term constraints on production growth, we remain very optimistic on
long-term potential on Rajasthan block. The fact that field development plans for MBA are
being revised should be viewed as a positive development in our view. We also continue to
believe that reserve estimate for MBA using enhanced oil recovery techniques (currently
assumed at 15% of in-place reserves) and the reserve estimate for non-MBA fields (7% of inplace
reserves) would move up significantly over time thereby supporting a higher plateau
production (over and above current guidance of 240kbd).
We would be revising our earnings estimates and releasing a more detailed note
subsequently.
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