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Cairn India - Indiabulls - 17 11 09 Visit us _ money.umakant.info

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CAIRN INDIA LIMITED RESEARCH
November 17, 2009

EQUITY RESEARCH

RESULTS REVIEW
Share Data Market Cap Price BSE Sensex Reuters Bloomberg Avg. Volume (52 Week) 52-Week High/Low Shares Outstanding Valuation Ratios (Consolidated) Year to 31 March EPS (Rs.) +/- (%) PER (x) EV/ Sales (x) EV/ EBITDA (x) Shareholding Pattern (%) Promoters FIIs Institutions Public & Others Holding >1% (Non-Promoter) Petronas International Corp. Ltd. Life Insurance Corporation of India Relative Performance 12.6 2.2 65 11 7 18 2010E 6.7 84.0% 42.2x 23.3x 40.0x 2011E 22.2 233.5% 12.6x 7.3x 10.1x Rs. 533.15 bn Rs. 281.10 17,050.65 CAIL.BO CAIR IN 0.97 mn Rs. 301.5 / 122 1,897 mn

Cairn India Limited
TP retained; rating downgraded

Sell

For Q2’10, Cairn India Limited’s (CIL’s) net revenues declined 28.3% yoy to Rs. 2,297.8 mn. This decline was largely due to a 31.7% yoy fall in average price realisations to USD 59.6 per boe. However, the Company’s adjusted net profit was up 4.3% yoy to Rs. 3,058 mn. We are excluding the reversal of the exceptional provision of Rs.1,637.1 mn for a past-profit petroleum payment pertaining to Ravva that was due to the Government of India. Accordingly we have excluded the same from Q1’10 results as well. We have valued the Company using NPV of CIL’s assets suggesting a target price of Rs. 256 implying a discount of 8.9% on the current market price of Rs. 281. Thus, we are changing our rating from Hold to Sell. No significant change in assets: Our target price has largely remained unchanged from the previous quarter and we believe that the current rally in the stock price is not justified as Cairn has not discovered any new fields and is focused on developing its current assets. We have assumed a peak production of 175,000 bopd from Rajasthan after accounting for other smaller fields that will become operational at a later stage. Also, the Ravva and CB fields are maturing and decrease in production from these fields is a cause for concern. Mangala field commenses production: Cairn India Ltd. has started commercial production from its Mangala (RJ ON-90/1) field. Mangala

300 250 200 150 100

production continues to build as per plan with average gross production of 5,991 bopd in Q2; currently producing 10,000 bopd. The field is expected to produce 30,000 bopd in Q3’10, and is likely to reach a peak production of 1,25,000 bopd by June 2010. The Centre has allowed private refiners to
May-09 Nov-08 Dec-08 Mar-09 Oct-09 Apr-09 Jul-09 Nov-09 Jan-09 Feb-09 Jun-09 Aug-09 Sep-09

qualify as additional buyers of Rajasthan crude, which is a positive for Cairn, with Essar and RIL already lining up as prospective buyers.
Key Figures (FY ended March) Q2'09 (Figures in Rs. mn, except per share data) Net Sales EBITDAX Margins(%) EBITDAX Per Share Data (Rs.) Adj. EPS 71.1% 1.55 64.5% 1.10 58.0% 1.61 4.1% 46.2% 3,206.3 2,278.6 Q1'10 2,049.5 1,321.3 Q2'10 2,297.8 1,332.8 YoY% (28.3%) (41.5%) QoQ% 12.1% 0.9%

CAIR IN

Rebased BSE Index

Please see the end of the report for disclaimer and disclosures.

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CAIRN INDIA LIMITED RESEARCH
November 17, 2009 Result Highlights CIL reported a decline in net sales, down 28.3% yoy to Rs. 2,297.8 mn, due to lower average price realisations. Nonetheless, reported net Income for the quarter was up 60.1% yoy to Rs. 4,695.1 due to an exceptional gain of 1,637.1 mn and a tax write-back of Rs. 1,814.9 mn. Adjusting for the exceptional gain, net income was up 4.3% yoy to Rs. 3,058 mn.

EQUITY RESEARCH

The following were the key operating highlights for the quarter: Working Interest boosted by production from Mangla field but Ravva and CB field recorded a fall in gross production and working interest • Gross production stood at 60,480 boed, down 7.8% yoy, while working interest stood at 18,638 boed, up 8.9% yoy. Working interest improved despite the fall in gross production due to contribution from the Mangla oil field in which Cairn has a working interest of 70%. • Net Sales were down 28.3% yoy to Rs. 2,297.8 mn while other income was down 48.6% yoy to Rs. 1,056.2 mn. Other income includes income from investments Rs. 396.3 mn and gain from foreign exchange fluctuation of Rs. 661.8 mn. • • EBITDAX for the quarter was down 41.5% yoy to Rs 1,332.8 mn on account of higher operating expenses and SG&A. The average oil price realization for the quarter stood at USD 69.1/bbl, down 27.3% yoy from USD 116.3/bbl. While, the average price realisation per boe stood at USD 59.6, down 31.7% yoy from USD 87.3. • In Q2’10, Cairn completed financing of USD 1.6 bn with a tenure of more than six years. The proceeds from this arrangement would be used for paying existing debt of USD 850 mn and the development of existing projects. • Production from Mangla field is on track and the first cargo was delivered to MRPL on October 9, 2009. Further, train two (50,000 bopd capacity) is expected to be ready by early 2010 and train three (50,000 bopd capacity) by June 2010. • Ministry of petroleum has asked Cairn to pay production tax of Rs.2,500 per tonne oil cess in proportion to its 70% interest in the Please see the end of the report for disclaimer and disclosures. -2-

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CAIRN INDIA LIMITED RESEARCH
November 17, 2009

EQUITY RESEARCH

Rajasthan fields, while ONGC will pay for its 30% stake. This liability on cess was not defined in the Production Sharing Contract and Cairn would challenge the same. Key Risks Major risks to our valuation are • • favourable movement in oil and gas prices new significant discoveries

Key Figures
Yr ending March* FY081 FY092 (Figures in Rs. mn, except per share data) Net Sales EBITDAX Net Profit Margins(%) EBITDAX NPM Per Share Data (Rs.) EPS PER (x) 68.5% 3.6% 63.5% 56.1% 61.0% 61.5% 58.2% 54.7% 72.1% 57.0% 75.3% 59.8% 10,917 7,479 388 14,327 9,097 8,034 FY093 11,168 6,817 6,870 FY10E FY11E FY12E CAGR (%) (FY093-12E) 23,093 13,441 12,640 73,947 53,334 42,155 100,491 75,669 60,124 108.0% 123.1% 106.1%

0.0 NM

4.2 43.4x

3.6 50.8x

6.7 42.1x

22.2 12.6x

31.7 8.9x

106.1%

* year ending changed from December to March 1. Pro-forma figures for April 2007 – March 2008 2. Pro-forma figures for January 2008 – March 2009 3. Pro-forma figures for April 2008 – March 2009

Valuation We have used NPV valuation for CIL’s assets, leading us to a target price of Rs. 256. Since our valuation implies a discount of 8.9% to the CMP of Rs. 281, we have changed our rating from Hold to Sell. Key Assumptions for arriving at the value include (i) the Company’s potential to grow its production volumes significantly in FY09-FY14 (ii) increase in price realisations to reflect the impact of the recent recovery in crude oil prices; we expect crude prices to hover at USD 70-80/bbl in the near term. However, this is partly offset by a 15% discount on pricing (vs.10% assumed earlier) as per the revised pricing formula.

Please see the end of the report for disclaimer and disclosures.

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CAIRN INDIA LIMITED RESEARCH
November 17, 2009

EQUITY RESEARCH

Disclaimer
This report is not for public distribution and is only for private circulation and use. The Report should not be reproduced or redistributed to any other person or person(s) in any form. No action is solicited on the basis of the contents of this report. This material is for the general information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be considered as an offer to sell or the solicitation of an offer to buy any stock or derivative in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Indiabulls Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. You are advised to independently evaluate the investments and strategies discussed herein and also seek the advice of your financial adviser. Past performance is not a guide for future performance. The value of, and income from investments may vary because of changes in the macro and micro economic conditions. Past performance is not necessarily a guide to future performance. This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Any opinions expressed here in reflect judgments at this date and are subject to change without notice. Indiabulls Securities Limited (ISL) and any/all of its group companies or directors or employees reserves its right to suspend the publication of this Report and are not under any obligation to tell you when opinions or information in this report change. In addition, ISL has no obligation to continue to publish reports on all the stocks currently under its coverage or to notify you in the event it terminates its coverage. Neither Indiabulls Securities Limited nor any of its affiliates, associates, directors or employees shall in any way be responsible for any loss or damage that may arise to any person from any error in the information contained in this report. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject stock and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. No part of this material may be duplicated in any form and/or redistributed without Indiabulls Securities Limited prior written consent. The information given herein should be treated as only factor, while making investment decision. The report does not provide individually tailor-made investment advice. Indiabulls Securities Limited recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. Indiabulls Securities Limited shall not be responsible for any transaction conducted based on the information given in this report, which is in violation of rules and regulations of National Stock Exchange or Bombay Stock Exchange.

Indiabulls (H.O.), Plot No- 448-451, Udyog Vihar, Phase - V, Gurgaon - 122 001, Haryana. Ph: (0124) 3989555, 3989666

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