Cairn India - Bhagyam ramp-up delay hits estimates - IDBI Capital

Cairn India Q2FY13 results came below expectation on the back of lower production volume and realisation. The company's reported net profit increased 204% YoY to Rs23 bn. However, adjusting for forex loss and one-time gain, adjusted PAT increased 88% YoY to Rs29.9 bn below our expectation of Rs31.7 bn due to lower production volume and realisation. The company's production volume from Rajasthan field increased 37% YoY to 172kbopd, below our expectation of 174kbopd due to lower output from Bhagyam field. Further, the company's net realization for Rajasthan crude came slightly below expectation at US$97.6/bbl, 10.8% discount to Brent, against 8% discount to Brent in Q1FY13.

Due to bottleneck in pipeline capacity and delay in drilling activities in Bhagyam field, the company has lowered its guidance of exit rate to 175kbopd (150kbopd from Mangala and 25kbopd from Bhagyam) against earlier 190-200kbopd. However, the company expects Aishwarya to start production from end-FY13 and has maintained most of the peak production of 240kbopd in CY13. However, due to delay in ramp-up in Bhagyam we are lowering our production volume assumption to 171/200kbopd in FY13/FY14 from earlier 178/225kbopd. Consequently, we are cutting our EPS estimates by 3.5%/12.2% for FY13/FY14 to Rs53.6/Rs47.7. The company is likely to give its first interim dividend by end of this month which could be higher than its dividend policy (payout ratio of 20%).

We are reducing our SOTP-based target price to Rs366 from earlier Rs390 on the back of cut in estimates. Downgrading to ACCUMULATE from BUY.

Source : Equity Bulls

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