Buy Cairn India - Q4FY2013 Result Update - Kotak

In Q4FY13, Cairn has reported profit after tax lower than our estimate. CIL has reported a PAT of Rs.25.64 Bn, lower by 23.4% QoQ but higher by 17.26% YoY. Lower profit is mainly on account of 1). Significantly higher unsuccessful and general exploration cost (Sri Lank block and South Africa block), and 2). Higher operating cost including staff cost.

In March'13, Aishwariya field commenced production, so full production will be reflected in FY14E earnings. In H2FY14, Bhagyam field is expected to ramp-up to approved production rate and in this regard, the Company has planned additional well drilling during this year. The Company's management has guided that Rajasthan block is expected to exit production at a rate of 200-215 kbopd (FY14 end). In Q4FY13, gas sales commenced from the Rajasthan block with initial targeted volumes of about 5 mmscfd.

In FY13, Cairn re-commenced oil exploration drilling in Rajasthan block and made 26th oil discovery in Raag S-1 well. In Mangala, 48 Infill wells planned to sustain plateau production and polymer EOR full-field implementation is planned in FY 2014-15.

We expect EPS of Rs. 54.6 and cash EPS of Rs. 64.6 for FY14E. We have modeled Brent crude oil price at $105/bbls and rupee at 53/$ for FY14E. In Q4FY13, the Company's Rajasthan crude oil realization was at discount of ~7.7% to Brent crude as against our assumption of 13% for the whole year.

Stock is fairly valued at 3.9x EV/EBIDTA and 6.2x P/E based on FY14E earnings estimates. We arrive at the fair value of the stock is Rs. 354/Share (earlier Rs.370/share). We recommend BUY 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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