Cairn India - Q1FY13 Result Update - Kotak

Cairn has reported better than expected Q1FY13 results. It has reported a PAT growth of 75% QoQ and 40.3% YoY to Rs.38.3 Bn. The results are better mainly on account of 1). Higher oil and gas production 2). Forex gain (Rs.8.7 Bn on deposits and receivables), 3). Lower operating and administration expenses and 4) Lower income tax.

- Mangala field is currently producing at ~150 Kbopd and Bhagyam is producing at ~25 Kbopd. Bhagyam is expected to ramp-up to its approved plateau rate of 40 kbopd in this regard the Company has drilled a total of 64 wells uptill now. The drilling activity for the residual wells approved under FDP is in-progress. Along with this, the pipeline de-bottlenecking is underway. The Raageshwari and Saraswati fields continue to cumulatively produce ~500 bopd. However, there is a marginal delay in commencement of production from Aishwariya field and is now expected to commence production by end FY13.

- CIL has renewed sales arrangements with buyers (PSUs and private refiners) for more than 175kbopd.

- As on 30th June'12, Gross cumulative Rajasthan development capital expenditure is at US$ 3,492 Mn, of which US$ 57.7 Mn was spent during Q1FY13.

- Management has stated that further investments are planned to augment processing capacity, pipeline infrastructure (as current MPT facility can support ~175 Kbopd) and E&P activity. In FY13E and FY14E, we expect a gross investment/ capex of ~$ 1.2 Bn, subject to government approvals.

- CIL's board of directors has approved the annual dividend policy. CIL is expected to maintain dividend payout ~20% of the annual consolidated net profit. CIL has indicated that actual dividend will be paid out only after corporate reorganization is complete which is expected in CY12.

- We believe the key triggers for Cairn India in the immediate near future are 1). Crude oil prices remains at elevated levels, 2). Rupee depreciation against dollar due to large current account deficit, etc, 3). Production ramp-up approval by GOI and 4). Any significant commercial discovery.

- Cash (Net debt) as on 30th June'12 was Rs.110.97 Bn (Rs.58.16/Share). The company has partly paid off its foreign debt. As on 30th June'12, the non-convertible debentures outstanding were Rs.12.5 Bn.

- We expect FY13E EPS of Rs. 52.6 and cash EPS of Rs. 61.8. We have modeled Brent crude oil price at $100/bbls and rupee at 52/$. In Q1FY13, the Company's Rajasthan crude oil realization was mere ~7.3% discount to Brent crude as against our assumption of 10% for the whole year.

- Stock is fairly valued at 5.1x EV/EBIDTA and 6.1x P/E based on FY13E earnings estimates.

- We believe the fair value of the stock is Rs. 365/Share (earlier Rs.360/share). We maintain our bullish view and maintain Accumulate rating on Cairn India Ltd as we believe the process of approvals and production ramp-up should speed up.

Source : Equity Bulls

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