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Recommendations India

Cairn India 3QFY2014 performance highlights and results update

January 24, 2014, Friday, 09:43 GMT | 04:43 EST | 15:13 IST | 17:43 SGT
Contributed by Angel Broking

Cairn India (Cairn)’s 3QFY2014 top-line and EBITDA were slightly above our expectations; however, its adjusted net profit was below our estimate. We maintain our Buy rating on the stock.
Higher volumes and rupee realizations boost top-line: The company’s top-line increased by 16.9% yoy to Rs.5,000cr (above our expectation of Rs.4,952cr) due to increase in both volumes as well as realizations. The company’s gross production averaged 224,493boepd (+10.0% yoy) during the quarter. Gross crude oil realization stood flat yoy to US$96.4/bbl (although it increased in INR terms due to INR depreciation against the USD)
Adjusted PAT falls 3.7% yoy: The EBITDA grew by 17.1% yoy to Rs.3,848cr, in line with increase in top-line while it recorded an exceptional item of valuation of stock options for Rs.155cr during 3QFY2014. However, due to lower other income (-22.7% yoy to Rs.140cr) and higher tax expenses (+256.7% yoy to Rs.115cr), the adjusted net profit declined by 3.7% yoy to Rs.3,039cr (lower than our estimate of Rs.3,291cr).
FY2014 exit guidance maintained: The company has maintained its FY2014 exit production guidance of 200kboepd for the Rajasthan block and has also maintained its capex guidance of US$3bn over the coming three years.
Outlook and valuation: Cairn has received approvals to increase production rate from Aishwarya field to 20kbpd while it will start Mangala Polymer flood Enhanced Oil Recovery (EOR) implementation from FY2016. The company will provide detailed road-map on its production plan at the end of FY2014. Further, there are various untapped exploratory upsides in Barmer Hills and other fields waiting to be developed. Hence, we recommend a Buy rating on the stock with a target price of Rs.384.