Cairn India - Forex gain, lower tax rate acts as surprise - Prabhudas Lilladher

Cairn India's (CIL's) revenue at Rs44.4bn (up 22% QoQ) mirrored the production growth at Rajasthan block with realisation remaining flattish. EBITDA at Rs34.9bn was broadly in line with our estimate of Rs35.4bn. However, on account of higher-than-anticipated forex gain (Rs8.66bn), coupled with lowerthan-estimated tax rate (3.2%), PAT at Rs38.3bn (up 75% QoQ, 40% YoY) was higher than our estimate of Rs32.6bn. Rajasthan realization at US$100/bbl (implying 7.3% discount to Brent). Production at the mature basins viz. Ravva and Cambay declined by 14% and 18% on the net oil and oil equivalent basis.

- CIL management has guided for exit production target of 175kbpd for FY12 from the Rajasthan block. The same is likely to be achieved via Bhagyam ramp-up which has commenced production and will rise to its peak rate of 40kbpd by FY12 end. Similarly, production commencement target for Aishwariya fields stands at H2CY12. However, pipeline capacity at 175kbpd remains a bottleneck for significant production increases beyond 175kbpd. Management believes maximum flexibility for incremental production is 5-10% over 175kbpd till pipeline capacity augmentation happens.

- Outlook and Valuation: We estimate crude oil prices to average at US$100/bbls and US$105/bbls for FY13 and FY14 respectively with OPEC playing balancing act in case of demand decline. Recent Cairn Energy stake sale of ~3.5% has adversely impacted the sentiment, however current a valuation discounting long term Brent oil prices of ~US$57/bbls provides an attractive entry point for long term investors. On the exploratory front, we build recoverable reserves of 1.76bn bbls against the CIL's disclosure of 1.69bn boe. Moreover, rupee denominated oil prices have held well despite the decline in crude oil prices. We maintain 'Accumulate' on the stock, with an SOTP fair value of Rs403/share.

Source : Equity Bulls

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