Cairn India - Output guidance maintained, some relief - Elara

Operationally in-line, PAT below expectations with dry wells w/o

Cairn India's Q4FY13 results were on expected lines operationally with revenue of INR43.6bn almost exactly in-line, while the EBITDA came below expectations due to one-off dry well write-offs in Sri Lankan and South African blocks. The Q4FY13 Rajasthan output stood 169.4kbpd, with the Aishwarya starting production in this quarter. The opex stood at USD3/bbl, below the guidance of USD5/bbl. The PAT came in at INR25.7bn (adjusted for forex), against out estimates of INR26.3bn.

Maintains FY14 output exit guidance of 200-215kbpd

Despite strong concerns on the Mangala field's natural decline, Cairn's management has confidently guided towards FY14 exit rate of 200-215kbpd, banking largely on the 48 infill wells as well as EOR to offset the decline in the field. Both of these proposals are with the OC/MC and are expected to get approved soon and contribute to the output by FY14-end. For Bhagyam, there are 66 wells drilled for the current output of 25kbpd and Cairn has room to drill another 30 wells to reach its approved 40kbpd output level by H2FY14 as the individual well productivity has been lower than expected. Aishwarya field should be reaching its peak of 10kbpd in the coming months. Overall, against strong Street worries about a downgrade in output guidance, Cairn has maintained its production guidance.

No near term triggers, but output guidance to support stock

While there was apparent reluctance from the management to provide field-wise output projections, Cairn's commentary in terms of maintaining and achieving strong output levels may support the stock in the medium term. With a strong 100+ exploration wells program chalked out for the non-MBA resources, we see strong exploration option value; however we do not perceive this to be near to medium term in nature in addition to being already captured in the current valuations to a reasonable degree. The recent stock correction has provided some margin of safety for investors and we expect the stock to deliver 13-15% returns over the next 18-24 months driven by reserve upgrades rather than production guidance upticks.

Source : Equity Bulls

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