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Cairn India 2QFY2013 performance highlights and results update

Contributed by Angel Broking

For 2QFY2013, Cairn India (CIL) reported strong operating performance due to higher sales volumes and rupee depreciation. We maintain our Accumulate rating on the stock.

Higher volumes and rupee depreciation drive CIL's top-line growth: CIL's top-line increased by a strong 67.5% yoy to Rs.4,443cr (in line with our expectation of Rs.4,418cr) led by higher crude oil sales volumes and rupee depreciation. During the quarter, CILRs.s working interest production volumes stood at 129,431 boepd vs 99,220boepd in 2QFY2012 and 127,226boepd in 1QFY2013. Although the gross crude oil realization decreased by 4.6% yoy and 2.9% qoq to US$98.1/bbl, the realization in rupee terms was higher yoy due to INR depreciation against the USD in 2QFY201 3 compared to 2QFY2012.

Forex loss drags reported PAT: The operating margin contracted by 165bp yoy to 77.7% due to increase in cess and profit petroleum. Its operating profit grew by 64.0% yoy to Rs.3,452cr. The company recorded an exceptional loss of Rs.786cr on account of forex fluctuation during 2QFY2013. Excluding this exceptional loss, the adjusted net profit grew by 1,239.7% yoy to Rs.3,108cr (above our estimate of Rs.2,807cr). The reported net profit grew by 204.3% yoy to Rs.2,322cr.

Outlook and valuation: CIL has the infrastructure in place to ramp up production to meet its targets. Hence, we expect production to gradually increase in the coming quarters to reach a capacity of 205kbopd by FY2014. Further, there are various untapped exploratory upsides in Barmer Hills and other fields waiting to be developed. Hence, we recommend an Accumulate rating on the stock with a SOTP-based target price of Rs.382.