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2QFY12 results were in-line, but management disclosure of infrastructure constraints have led us
to cut our FY12-14 production estimates by 3%-11%. Notwithstanding the negative suprise, we
remain positive on the exploration prospects in Rajasthan. We roll forward and raise TP to Rs325.
Maintain Buy.
2QFY12 – in line operational performance…
2QFY12 was operationally a steady quarter with Rajasthan production (125kbpd) and crude
realisation (10.4% discount to Brent) coming in line with our estimates. Reported PAT of Rs7.6bn
was 54% ahead of us largely due to forex gains of Rs5.3bn. The exceptional hit to profits on
account of the royalty adjustment was Rs13.6bn, which was 4% above our expectations. Net
cash at end 2QFY12 was up 42% qoq to US$1.46bn driven by high crude prices, low opex in
Rajasthan (US$2.5/bbl) and low capex. CIL has started drilling the second well in the Sri Lanka
block after gas discovery in the first well.
…But disclosure on infrastructure constraints negatively surprised us
CIL management disclosed that constraints in crude evacuation infrastructure would cap
Rajasthan gross production to 175kbpd until CY13 (exact timing within CY13 not specified). Thus
the production rate cannot meet our earlier expectations of 190kbpd by early CY12 and 210kbd
by end CY12 even if there is the ability and GOI approval to produce more. We now assume that
infrastructure constraints will be fully resolved by mid-CY13 and accordingly cut our FY12-14
Rajasthan production estimates by 3%-11%.
We remain positive on Rajasthan prospects, increase TP to Rs325
Notwithstanding the near-term production setbacks, we believe Rajasthan offers tremendous
exploration upside. CIL’s proposed revisions to field development plans (FDPs) and ONGC
chairman’s recent comments on Rajasthan production potential of 225kbpd signify the
production/reserves upside in our view. We have cut our FY12-14 EPS estimates by 5%-13% due
to production cuts. However we roll forward and increase our target price from Rs310 to Rs325
(USD/INR rate maintained at 45). Using the current Brent futures curve instead of RBS oil
forecasts would raise our target price further to Rs338.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
2QFY12 results were in-line, but management disclosure of infrastructure constraints have led us
to cut our FY12-14 production estimates by 3%-11%. Notwithstanding the negative suprise, we
remain positive on the exploration prospects in Rajasthan. We roll forward and raise TP to Rs325.
Maintain Buy.
2QFY12 – in line operational performance…
2QFY12 was operationally a steady quarter with Rajasthan production (125kbpd) and crude
realisation (10.4% discount to Brent) coming in line with our estimates. Reported PAT of Rs7.6bn
was 54% ahead of us largely due to forex gains of Rs5.3bn. The exceptional hit to profits on
account of the royalty adjustment was Rs13.6bn, which was 4% above our expectations. Net
cash at end 2QFY12 was up 42% qoq to US$1.46bn driven by high crude prices, low opex in
Rajasthan (US$2.5/bbl) and low capex. CIL has started drilling the second well in the Sri Lanka
block after gas discovery in the first well.
…But disclosure on infrastructure constraints negatively surprised us
CIL management disclosed that constraints in crude evacuation infrastructure would cap
Rajasthan gross production to 175kbpd until CY13 (exact timing within CY13 not specified). Thus
the production rate cannot meet our earlier expectations of 190kbpd by early CY12 and 210kbd
by end CY12 even if there is the ability and GOI approval to produce more. We now assume that
infrastructure constraints will be fully resolved by mid-CY13 and accordingly cut our FY12-14
Rajasthan production estimates by 3%-11%.
We remain positive on Rajasthan prospects, increase TP to Rs325
Notwithstanding the near-term production setbacks, we believe Rajasthan offers tremendous
exploration upside. CIL’s proposed revisions to field development plans (FDPs) and ONGC
chairman’s recent comments on Rajasthan production potential of 225kbpd signify the
production/reserves upside in our view. We have cut our FY12-14 EPS estimates by 5%-13% due
to production cuts. However we roll forward and increase our target price from Rs310 to Rs325
(USD/INR rate maintained at 45). Using the current Brent futures curve instead of RBS oil
forecasts would raise our target price further to Rs338.
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