Cairn India Limited - Q4FY12 Result Update - Centrum

Resource potential upped; production ramp up holds the key

Cairn reported lower than expected numbers marred by forex losses of over Rs2bn (Q3FY12 - forex gains of over Rs3bn). However, operationally the performance was superior with average crude production from Rajasthan higher at 137,634bpd due to start up of Bhagyam production during the quarter. Cairn has upped its resource potential of gross hydrocarbons initially in place (GHIIP) from 6.5bn boe by March 2011 to 7.3bn boe by March 2012. Additionally, recoverable resources have been upped to 1.7bn boe from 1.4bn boe earlier. The company has indicated that the block can produce over 300,000bpd with the increased resource potential subject to approvals and further investments.

Bhagyam start up adds to Rajasthan production: During January 2012, Bhagyam started crude production which led to overall jump in Rajasthan production from 125,122bpd in Q3 to 137,634bpd in Q4. With the approval to increase Mangala production to 150,000 and 25,000bpd of Bhagyam production, the Rajasthan block is currently producing a total of 175,000bpd. Crude production from Ravva jumped to 27,082bpd QoQ from 26,254bpd; however, gas production declined to 60mmscfd from 62mmscfd in Q3.

Forex losses impact the bottom line: Opex and DDA for the quarter were in line with the company's guidance. The company reported forex losses of over Rs2bn which impacted the bottom line despite higher crude oil production and better QoQ realisations. Cairn thus reported 3.3% QoQ and 11.0% YoY decline in PAT at Rs21.9bn.

Bhagyam to reach plateau shortly, Aishwariya to start production by end 2012: Cairn commenced crude production from its Bhagyam field on January 19, 2012 and is currently producing about 25,000bpd. This will be further ramped up to reach its plateau of 40,000bpd shortly. The company also received approval to increase Mangala production from 125,000bpd to 150,000bpd. With higher production from Mangala Rajasthan production stands currently at about 175,000bpd. Current pipeline capacity is 175,000bpd and with de-bottlenecking, the capacity will be ramped up by another 10% in coming months. With additional investments, the capacity can be increased to accommodate higher volumes. Cairn has upped its gross resources from Rajasthan to 7.3bn boe from 6.5bn boe a year back. Also, the recoverable resources from the block have been upped to 1.7bn boe from 1.4bn boe. The company has also indicated production potential of over 300,000bpd with incremental investments and government approvals. We have already factored in 240,000bpd plateau from FY15 onwards. Upside to our current target price prevails if the company is able to increase its plateau to 300,000bpd. We thus currently maintain 'Hold' on the stock with a price target of Rs369.

Source : Equity Bulls

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