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Research
Cairn India - Volumes under pressure; Optimistic Guidance - Karvy
Posted On : 2013-07-04 21:19:13( TIMEZONE : IST )
Cairn has guided optimistic volumes for FY14 with an expectation of commencement of Aishwarya fields; ramping up of Bhagyam fields to the approved peak of 40000 bopd and commencement of production from Barmer hill formation. We have factored these as well as all the potential resources in our assumptions. Softening crude oil price outlook is expected to keep the valuations under pressure.
Softening crude oil price to keep earnings under check
Weakening macro scenario in the European, Asia Pacific and emerging countries is likely to restrict crude oil price at current levels and correct going forward. Our sensitivity analysis indicates Rs 15 /shr variation to every $5/bl movement in crude oil price. Weakening rupee is likely to avert dip in the valuation to a certain extent. Our impact analysis suggests Rs. 5/share variation to every rupee increase. At crude oil price of $105/bl and rupee of 58 the valuation arrives at Rs. 390/share.
Management guidance optimistic for FY14 and FY15
Management is optimistic as reservoir issues with Bhagyam fields have been sorted out and it is expected to ramp up to its approved rate of 40000 bopd from 19000 bopd in 2HFY14. Aishwarya fields is expected to ramp up in few months as production has started. Development plan for Barmer hill has been submitted and the production is expected to commence in this financial year. The pipeline has been debottlenecked to carry higher volumes. Management is guiding to achieve production rate of 200000-215000 bopd in FY14 from Mangala, Bhagyam, Aishwarya and Barmer Formations.
Our valuation factors these developments
We have assumed peak rate of 210000-215000 bopd from MBA fields for our earning assumptions. Based on long term assumption of crude at $ 100/bl and Rs 54/$ we reiterate our target price of Rs.320 and maintain HOLD on the stock as we have factored in all the resources. Our valuation arrives at EV/BOE multiple of 9.5$/bl on Rajasthan resources.
