Cairn India - Below street expectation - IndiaNivesh

Cairn India reported its Q2 FY13 numbers (Consolidated) below street as well our expectation. Cairn India reported 39% Q-o-Q decrease in net profit to Rs 23.91 bn vs. our estimates of Rs 28 bn, led by a foreign exchange loss of Rs 7.6 bn (vs. gain of 8.7 bn in Q1FY13) on US dollar deposits (we had factored loss of Rs. 2.7 bn) and receivables. However, other income increased substantially 130% Y-o-Y to Rs. 2.2bn. Adjusted PAT (excluding forex loss and other income) comes at Rs. 26.90 bn, slightly lower than consensus of Rs.28 bn. Revenue remained flat q-o-q to Rs 44.43 bn lower than expectation of Rs 45.44 bn due to lower oil realization and decline in production from mature fields of Ravva and Cambay. Oil price realization declined 3% q-o-q to US$ 98.1/bbl (discount to Brent 10.8% vs. ~7.3% in Q1FY13). Rajasthan field's net oil production rose 3% Q-o-Q to 120.26 kbopd (Gorss production (171.80 boepd). EBITDA margin contracted marginally 76 bps q-o-q to 77.10% due to increase in cess. The company Board will meet on October 31 to consider payment of interim dividend.

We expect Cairn's volumes from Rajashtan field to flatten between 173 to 175kbpd till end-FY13 and further ramp up (up to 185/190kbpd) require fresh FDP (Field Development Plan) for Bhagyam/ Aishwariya augmentation. Major increases beyond that are subject to further approvals from joint venture partner, the Oil and Natural Gas Corporation (ONGC) and the Government of India. We model gross production from the Rajasthan block at 173 kb/d for FY2013E, 205 kb/d for FY2014E and 210 kb/d for FY2015E.

We have valued Cairn on the basis of SOTP methodology, using DCF for Cairn's producing assets (MBA fields, Ravva and Cambay) and EV/bbl to value other exploratory blocks. Our DCF based valuation of Cairn, based on long term Brent crude price of USD110/bbl and INR/USD of 50 is Rs 346. At CMP of Rs. 338 Cairn is trading at 6.80 x of FY13E EPS. We recommend to hold the stock with target price of Rs. 346. Key catalyst for upside in the stocks would be a) high production growth; b) increasing reserve base; 3) weaker INR and exchange rate.

Source : Equity Bulls

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