Cairn India - Q3FY14 Result Update - LKP Research

Result in line with expectations

Cairn's Q3FY14 adjusted net profit of Rs30.1bn was in line with our estimate. Revenue for the quarter increased by 16.9% on annual basis to Rs50bn (qoq +7.5%) driven by rupee depreciation of 14.5% and production increase from Rajasthan block. Average gross production for the quarter was at 225kboepd (yoy +9.5%, qoq +5.2%) while average oil price realization stood at $96.4/bbl (yoy +0.2%, qoq -0.3%). Production from Rajasthan fields increased by 9.6% yoy to 186kbpd (qoq +6.2%) driven by increase in production from Aishwariya. Cairn is currently producing 190kbpd from its Rajasthan fields. The management has maintained its Rajasthan exit production rate at 200kbpd for FY14.

Valuation and view

We estimate Cairn to generate FCF to the tune of $2.3bn over the next two years assuming Rs575bn outflow towards share buyback. We believe the street would follow closely the steps Cairn takes to deploy its FCF. Inability of the company to successfully deploy this huge cash pile could affect the return ratios and valuation of the company.

We value Cairn's business using NPV method to value its developing and producing assets while potential exploratory upside has been captured using EV/boe. We value its key Rajasthan fields at Rs235/share while we value exploration upside at Rs34/share.

We maintain our BUY rating on Cairn with a revised SOTP based target price of Rs386. At the CMP, the stock is trading at 5.6x and 3.6x FY15e EPS and EBITDA respectively.

Source : Equity Bulls

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