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Cairn India (CIL) reported net profit of `1,585cr for 2QFY2011, which was better
than our as well as street estimates driven by better-than-expected operating profit
on account of higher-than-expected production volumes and lower opex at the
Rajasthan fields. Lower-than-expected tax rate resulted in bottom-line coming in
significantly above our estimates during the quarter. On account of fair
valuations, we maintain our Neutral view on the stock.
Mangala production drives growth: CIL reported 1,069.1% yoy increase in
top-line to `2,686cr (`230cr) in 2QFY2011. Working interest production during
the quarter grew 406.0% yoy to 94,304boepd (18,638boepd) on account of
production ramp up at the Rajasthan field. Gross production at the Mangala
fields stood at an average 116,058bpd in 2QFY2011 compared to 44,381bpd in
1QFY2011 and 17,523bpd in 2QFY2010. Current production from the field is
hovering around 125,000bopd. During the quarter, blended realisations
registered an increase of 13.8% yoy to US $67.8/boe (US $59.6/boe). Average
realisations of Mangala crude stood at US $68.6/bbl (US $68.7/bbl in
1QFY2011).
Outlook and Valuation: We have calculated CIL's NAV by estimating cash flows
on asset-by-asset basis, with the associated assumptions for production profile,
oil/gas pricing, royalty/cess, opex and fiscal terms. Our NAV calculation is based
on long-term crude oil price of US $75/bbl, whereas the current stock price is
discounting long-term average crude price of US $79.1/bbl. Our NAV works out
to `315. Thus, on account of fair valuations, we maintain our Neutral view on the
stock.
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