Cairn India - Moneycontrol

22 January 2015
3QFY15 Results Update | Sector: Oil & Gas
Cairn India
BSE SENSEX
29,006
Bloomberg
S&P CNX
8,761
CAIR IN
Equity Shares (m)
1,874.8
M.Cap. (INR b) / (USD b) 447.5/7.3
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
385/228
-9/-42/-62
Avg Val (INR M)/Vol ‘000 842/2,687
Free float (%)
40.1
Financials & Valuation (INR Billion)
Y/E MAR
2015E 2016E 2017E
Sales
EBITDA
Adj. PAT
Adj. EPS
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA
Div. Yield
148.3
98.1
73.1
39.0
-40.1
326
12.3
12.3
38.2
134.4
73.2
42.0
22.4
-42.6
333
6.8
7.3
24.6
153.8
84.3
43.3
23.1
3.1
351
6.7
8.4
24.6
6.1
0.7
2.9
5.2
10.7
0.7
4.1
1.9
10.3
0.7
3.0
2.0
Estimate change
TP change
Rating change
26%
9%
CMP: INR239
TP: INR250 (+5%)
Neutral
EBITDA beat, higher tax impacts PAT; cut oil price assumptions and estimates
EBITDA beat, PAT below estimate: CAIR’s 3QFY15 sales at INR35b (est. INR32b,
-30% YoY, -12% QoQ) were above estimate led by higher Ravva production at
28kboepd (est. 23kboepd, +35% QoQ) and lower profit petroleum at INR9.5b (v/s
est. of INR12b). However, PAT was below estimate at INR13.5b (est. INR14.3b,
-53% YoY, -41% QoQ) due to higher tax rate at 22% (v/s last eight-quarter average
of 3.9%). Lower-than-expected other income at INR1.6b (v/s est. INR3.9b, +16%
YoY, -53% QoQ) was compensated by higher forex gain at INR3.5b (v/s est.
INR1.3b).
 Post 2QFY15 maintenance, Rajasthan 3QFY15 averaged 180kbpd, +10% QoQ:
Increased contribution from satellite fields and Aishwariya ramp-up to 30bpd
aided Rajasthan production to reach 180kbpd (-3% YoY, +10% QoQ). While the
earlier production guidance is a three-year CAGR of 7-10%, it will be updated in
4QFY15 results.
 Rajasthan realization at USD68.3/bbl implies 10.8% discount to Brent (v/s 10.2% in
2QFY15). IOR/EOR on track with first polymer injected in October 2014.
 Guides to remain free cash flow positive and maintain absolute dividend: Despite
the 55% crude price decline in the last six months and similar earnings impact,
management indicated its intention to maintain the absolute dividend (implies
~40% payout v/s policy of 20%). In our view, CAIR’s guidance to remain free cash
flow positive could entail some capex program cuts.
Valuation and view
 We lower the Brent price assumption for FY16E/17E from USD75/85/bbl to
USD60/70/bbl, resulting in 26% cut in FY16E/17E estimates. We maintain the
absolute dividend estimate of INR12.5/sh in FY15E but continue to model 20%
payout from FY16E.
 The stock trades at 10.7x FY16E EPS of INR22.4 and has a dividend yield of ~5%
(based on fixed payout). Our SOTP-based fair value stands at INR250 (v/s INR275
earlier). Maintain Neutral.

Harshad Borawake (HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Cairn India
Takeaways from the Earnings Concall






Cairn indicated that it has ability to maintain absolute dividend despite fall in
earnings subject to board approval. Management clarified that its dividend
policy of 20% is the minimum payout policy. It also clarified that if need arises it
could use balance sheet reserves to pay the dividend.
Aishwariya production reached 30kbpd as per approved plan.
Reported forex gain in the income statement also includes exchange fluctuation
gain from the USD1.25b loan given to the parent.
Management clarified that based on change in the investment multiple
government profit sharing trend could also reverse (i.e. it could again fall back to
lower level). While Rajasthan PSC allows such reversal, no such provision exists
in Raava or Cambay PSC.
Despite the crude price fall, management guided that it aims to remain free cash
flow positive implying cuts in the exploration / development plans
Mangala IOR/EOR project is on schedule with first polymer injected on October
1, 2014 and critical package construction is in advanced stage. Production
contribution is expected from 1QFY16.
Other key highlights






22 January 2015
Profit petroleum in 3QFY15 stood at INR9.5b (v/s INR12.8b in 3QFY14 and
INR11.3b in 2QFY15). The current government share in DA1 is 40% and DA2 is
30%.
Rajasthan royalty share stood at INR6.9b (v/s INR11.1b in 3QFY14 and INR9.1b
in 2QFY15).
Other income stood at INR1.6b (v/s INR1.4b 3QFY14 and INR3.5b in 2QFY15).
Sharp QoQ fall in other income is due to non-booking of mark-to-market gains
on investments as per IFRS standards.
Effective tax rate (PBT before forex changes) was higher in 3QFY15 at 22.8% (vs
last 8 quarter average of 3.9%) led by lower MAT credit on account of lower
crude price.
Foreign exchange gain stood at INR3.5b (v/s loss of INR1.3b in 3QFY14 and gain
of INR2.4b in 2QFY15).
Gross cumulative Rajasthan capex stands at USD4.9b (89% in DA1 and 11% in
DA2). 3QFY15 capex share stood at of USD247m.
2
Cairn India
Exhibit 1: Cairn India: Operating Performance
FY12
3Q
4Q
1Q
FY13
2Q
3Q
4Q
1Q
FY14
2Q
3Q
4Q
1Q
FY15
2Q
3QFY15 (%)
3Q YoY QoQ
Gross oil production (kbpd)
Ravva
26.3 25.0 23.5 21.6 21.5 20.8 21.9 22.6 21.9 18.8 19.5 20.5 23.4
7.1 14.2
Cambay
4.8
5.1
4.7
4.3
4.6
4.5
8.6
6.8
8.2
7.3
8.4
8.4
8.9
8.4
6.7
Rajasthan
125.1 137.6 167.1 171.8 170.0 168.6 172.8 175.5 186.4 190.9 183.2 163.3 180.0 (3.4) 10.3
Sub-total
156.2 167.7 195.4 197.7 196.0 193.9 203.3 205.0 216.5 217.1 211.1 192.1 212.3 (1.9) 10.5
Gross gas production (mmscmd)
Ravva
1.8
1.7
1.5
1.2
1.1
1.1
1.1
1.1
1.0
0.9
0.7
0.0
0.7 (27.0) 2,530
Cambay
0.5
0.5
0.4
0.4
0.4
0.3
0.4
0.3
0.3
0.3
0.4
0.4
0.4
6.8 (6.8)
Rajasthan
0.1
0.1
0.1
0.3
0.2
0.2
0.2 98.5
0.0
Sub-total
2.3
2.2
2.0
1.6
1.5
1.4
1.6
1.4
1.4
1.3
1.2
0.4
1.1 (18.5) 162.3
Gross total (kboepd)
169.6 180.3 207.0 207.2 205.0 202.0 211.8 213.3 224.5 224.4 217.9 194.5 218.9 (2.5) 12.5
Net oil production (kbpd)
Ravva (22.5%)
Cambay (40%)
Rajasthan (70%)
Sub-total
Net gas production (mmscmd)
Ravva (22.5%)
Cambay (40%)
Rajasthan (70%)
Sub-total
5.9
5.6
5.3
4.9
4.8
4.7
4.9
5.1
4.9
4.2
4.4
4.6
5.3
1.9
2.0
1.9
1.7
1.8
1.8
3.4
2.7
3.3
2.9
3.4
3.4
3.6
87.6 96.3 117.0 120.3 119.0 118.0 121.0 122.8 130.5 133.6 128.2 114.3 126.0
95.4 104.0 124.2 126.8 125.7 124.5 129.3 130.7 138.7 140.8 136.0 122.2 134.8
0.4
0.2
0.4
0.2
0.3
0.2
0.3
0.2
0.3
0.2
0.2
0.1
0.6
0.6
0.5
0.4
0.4
0.4
0.2
0.1
0.1
0.5
0.2
0.1
0.1
0.5
7.1
8.4
(3.4)
(2.8)
14.2
6.7
10.3
10.3
0.2
0.1
0.2
0.1
0.2
0.2
0.0
0.2
0.2 (27.0) 2,530
0.1
6.8 (6.8)
0.4
0.3
0.3
0.2
0.3 (14.3)
91.2
Net oil + gas production
(kboepd)
Ravva (22.5%)
Cambay (40%)
Rajasthan (70%)
Net Total (kboepd)
8.2
7.9
7.3
6.4
6.4
6.1
6.4
6.6
6.3
5.5
5.4
4.6
6.3
3.2
3.1
2.9
2.7
2.7
2.5
4.3
3.5
4.1
3.7
4.3
4.3
4.4
87.6 96.3 117.0 120.3 119.0 118.0 121.5 123.8 131.5 134.8 129.3 114.3 126.0
99.0 107.3 127.2 129.4 128.1 126.6 132.1 133.8 141.9 144.0 139.0 123.2 136.7
(0.3)
8.1
(4.2)
(3.7)
34.9
4.3
10.3
11.0
Key Operating Metrics
Fx rate (INR/USD)
51.0
(0.3)
2.1
50.2
54.2
55.5
54.2
54.2
55.9
62.5
62.0
62.0
59.8
60.5
61.8
Brent (USD/bbl)
109.3 118.8 108.7 110.0 110.0 113.5 102.8 110.6 109.2 107.7 109.7 102.0
Rajasthan realization (USD/bbl)
Disc. to Brent (%)
100.3 108.5 100.5 97.6 95.6 99.7 94.3 96.0 95.6 95.2 97.5 91.5 68.3 (28.6) (25.4)
(8.2) (8.7) (7.6) (11.3) (13.1) (12.2) (8.3) (13.2) (12.5) (11.6) (11.1) (10.3) (10.8) (13.3)
4.9
76.0 (30.4) (25.5)
Natural gas (USD/mmbtu)
Average realization (USD/boe)
Average realisation (INR/boe)
4.3
4.3
4.4
4.5
4.5
5.0
4.8
5.7
5.7
5.9
5.4
7.1
6.1
6.8 (13.7)
98.3 106.7 99.3 96.7 95.0 99.5 93.3 95.3 94.9 94.4 93.3 95.3 68.1 (28.2) (28.5)
5,015 5,352 5,382 5,365 5,147 5,388 5,215 5,956 5,884 5,853 5,577 5,766 4,209 (28.5) (27.0)
Source: MOSL, Company
22 January 2015
3
Cairn India
Exhibit 2: CAIRN QUARTERLY P&L (INRb)
INR B
Gross revenues
Less: Profit Petroleum
FY12
3Q
4Q
1Q
43.0 49.5 59.9
5.7
6.5
6.8
FY13
2Q
3Q
61.0 58.5
7.0
7.2
FY14
4Q
1Q
2Q
3Q
59.4 59.9 69.8 73.9
7.2 10.5 12.4 12.8
4Q
73.5
12.0
1Q
73.3
17.8
FY15
2Q
60.2
11.3
Less: Levies (Cess + Royalty)
Net Revenues
Less: Opex
EBITDA
Less: Exploration w/off
Less: D,D&A
EBIT
Less: Interest
Add: Other Income
PBT prior to FX fluctuations
9.2
28.0
2.5
25.5
1.8
3.8
19.9
0.2
1.1
20.8
15.6
37.5
2.5
34.9
0.4
4.4
30.2
0.3
1.0
30.9
16.8
37.3
2.7
34.5
0.3
4.5
29.7
0.2
2.2
31.8
15.6
35.7
2.8
32.9
0.3
4.8
27.8
0.1
1.8
29.5
15.5
36.8
4.2
32.6
3.7
4.7
24.2
0.2
2.2
26.2
17.8
43.7
5.2
38.4
1.6
6.4
30.5
0.1
4.1
34.4
18.0
37.5
4.5
33.1
2.5
7.2
23.3
0.0
4.2
27.5
15.6
33.3
5.4
27.9
1.3
7.0
19.5
0.1
3.5
22.9
8.7
(7.9)
2.4
(0.0)
Forex gain / (loss)
PBT
Tax
Tax rate (%)
PAT
EPS
3.0
23.8
1.2
5.0
22.6
11.8
10.5
32.5
2.7
29.8
0.6
4.0
25.1
0.3
0.9
25.8
(2.2)
23.6
1.7
7.4
21.9
11.4
39.5 23.9
1.3 0.7
3.2 2.9
38.3 23.2
20.0 12.2
31.9 26.2
0.3
0.6
1.0
2.2
31.6 25.6
16.5 13.4
15.9
33.5
3.4
30.1
1.0
5.2
23.9
0.1
1.3
25.1
18.3
39.2
3.9
35.3
0.5
5.5
29.3
0.1
1.1
30.3
18.9
42.3
5.3
36.9
1.0
5.9
30.0
0.1
1.4
31.3
6.8
4.3
(1.3)
31.9 34.6 30.0
0.6
0.8
1.2
1.9
2.3
3.8
31.3 33.9 28.8
16.4 17.7 15.1
(2.4)
32.0
1.6
5.1
30.4
15.9
1.0
2.4
28.5
1.3
4.5
27.2
14.2
25.3
2.6
10.1
22.8
11.9
3QFY15 (%)
3Q
YoY QoQ
51.5 (30.4) (14.5)
9.5 (25.8) (16.2)
14.2
27.8
5.9
21.8
1.6
8.9
11.4
0.1
1.6
12.9
(24.7) (9.1)
(34.3) (16.5)
10.9 10.5
(40.8) (21.7)
56.8 17.3
49.8 26.8
(62.1) (41.8)
(7.5) 64.8
16.1 (52.9)
(58.7) (43.7)
3.5 (374.0) 47.2
16.4
2.9
17.9
13.5
7.1
(45.2) (35.1)
155.5 14.9
366.1 77.2
(53.2) (40.8)
(53.2) (40.8)
Source: Company, MOSL
Exhibit 3: CAIRN QUARTERLY P&L (USD/bbl)
USD/bbl
Gross revenues
Less: Profit Petroleum
FY12
FY13
FY14
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
92.6 101.0 95.5 92.3 91.7 96.2 89.1 90.8 91.3 91.5
12.3 13.2 10.9 10.6 11.3 11.6 15.7 16.1 15.8 14.9
1Q
97.0
23.5
FY15
2Q
87.8
16.5
3QFY15 (%)
3Q YoY QoQ
66.2 (27.5) (24.6)
12.2 (22.7) (26.1)
Less: Levies (Cess + Royalty)
19.9
22.2
23.8
22.8
18.3 (21.5) (19.8)
Net Revenues
Less: Opex
EBITDA
Less: Exploration w/off
60.3 66.4 59.7 56.4 55.9 59.6 49.8 51.0 52.2 54.3
5.5
5.6
4.0
4.2
4.4
6.8
5.1
5.0
6.6
6.5
54.8 60.9 55.7 52.2 51.5 52.8 44.8 45.9 45.6 47.8
3.8
1.3
0.6
0.4
0.4
5.9
1.5
0.7
1.2
2.0
49.7
5.9
43.8
3.4
48.5
7.8
40.7
2.0
35.7 (31.6) (26.4)
7.6 15.5 (2.5)
28.1 (38.4) (30.9)
2.0 63.2
3.4
Less: D,D&A
EBIT
Less: Interest
Add: Other Income
PBT prior to FX fluctuations
8.2
42.9
0.5
2.4
44.8
8.2
51.4
0.6
1.9
52.6
9.5
30.9
0.0
5.5
36.4
10.3
28.5
0.1
5.0
33.5
11.5 56.0 11.8
14.6 (60.5) (48.7)
0.1 (3.6) 45.4
2.1 20.9 (58.5)
16.6 (57.0) (50.4)
6.5
(4.4)
13.8 (11.9)
51.3
2.5
10.7
48.7
48.2
3.5
15.0
44.6
63.0
2.0
5.1
61.0
Forex gain / (loss)
PBT
Tax
Tax rate (%)
PAT
21.4
24.9
7.0
48.1
0.5
1.5
49.2
25.4
6.8
45.0
0.3
3.4
48.1
36.2
1.1
4.4
35.1
24.4
25.1
7.6
43.5
0.1
2.9
46.3
7.7
39.2
0.2
3.6
42.5
3.7
(0.0)
50.0
0.5
1.6
49.5
42.5
0.9
3.6
41.5
23.6
7.7
35.6
0.2
1.9
37.3
23.8
23.3
7.1
38.2
0.1
1.4
39.4
7.4
37.0
0.1
1.7
38.7
7.9
37.9
0.1
5.1
42.9
10.1
5.6
(1.6)
(3.0)
1.3
3.5
47.4
0.9
2.8
46.5
45.0
1.0
3.0
44.0
37.1
1.4
4.7
35.6
39.8
2.0
6.4
37.8
37.7
1.7
5.9
36.0
37.0
3.7
14.7
33.2
4.5 (385.3)
21.2
3.8
23.0
17.4
29.8
(42.9) (42.8)
166.1
1.4
385.4 56.3
(51.3) (47.7)
Source: Company, MOSL
22 January 2015
4
Cairn India
180.0
183.2
1QFY15
163.3
190.9
175.5
2QFY14
4QFY14
172.8
1QFY14
186.4
168.6
4QFY13
3QFY14
170.0
3QFY13
125.1
3QFY12
171.8
125.3
2QFY12
2QFY13
125.1
1QFY12
167.1
118.0
4QFY11
1QFY13
124.9
3QFY11
137.6
116.1
3QFY15
2QFY15
4QFY12
4QFY10
44.7
3QFY10
2QFY11
17.5
2QFY10
1QFY11
6.0
15.4
1QFY10
Exhibit 4: Rajasthan Gross Production averaged 180kbpd, up 10% QoQ led by maintenance
shutdown in 2QFY15
Source: Company, MOSL
Exhibit 5: CAIRN Net O+G Production up QoQ led by Rajasthan (kboepd)
Ravva (22.5%)
Cambay (40%)
94
45
25 26
16 19
31
0 4 11 12
1QFY10
4QFY10
100
94
100 99 99
Rajasthan (70%)
Net Total (kboepd)
142 144 139
137
134
132
129
128 127
127
123
107
96
81 87 83 88 88 88
3QFY11
2QFY12
117 120 119 118 122 124
1QFY13
4QFY13
131 135 129
3QFY14
114
126
2QFY15
Source: Company, MOSL
Exhibit 6: Increasing production contribution from satellite fields
Source: Company, MOSL
22 January 2015
5
Cairn India
Rajasthan discount to Brent at ~10.8%


Rajasthan realization stood at ~USD68.3/bbl (29% YoY, -25% QoQ), implying
discount to Brent at ~10.8% (v/s 12.5% in 3QFY14 and 10.2% in 2QFY15).
Cairn continues to guide Rajasthan realization discount to Brent between 8-13%.
Exhibit 7: Rajasthan discount to Brent at 10.8% in 3QFY15 v/s 10.2% in 3QFY15
16%
14%
12%
10%
8%
6%
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
1QFY11
4%
Source: Company, MOSL
Exploration and development program on track





Cairn had planned to spend USD3b over the next three years of which USD2.4b
will be spent on Rajasthan, with 81% to be spent in FY15 and FY16.
Fall in the crude price will definitely lead to realignment of the Cairn’s capex
program. Management has indicated that low oil price gives them optionality to
be selective about growth projects.
CAIR in 1QFY15 increased in-place oil and gas resources at Rajasthan from 7b
boe (4bboe discovered + 3bboe under exploration) to 10bboe and the current
FY14-16 exploration program is targeting the initial 7bboe resource base.
Cairn tested ~50% of the undiscovered 3bboe reserves and in the ongoing
exploration program it has reported 11 discoveries of the 36 wells drilled.
It plans to test the remaining 50% of 3bboe resources by FY16 and beyond FY16
will be targeting to test the newly added 3bboe of resources.
Exhibit 8: On land portfolio and concentrated resource base offers Cairn cost advantages over its peers
*Size of the bubble indicates Market Cap (USD Bn)
22 January 2015
Source: Company, MOSL
6
Cairn India
Exhibit 9: Ongoing exploration campaign tested ~50% (1.4bboe) planned resources
Source: Company, MOSL
Exhibit 10: Update on Cairn’s Key Exploration blocks
No. Exploration Blocks
2QFY15 update
3QFY15 update
1 KG-ONN-2003/1 - Management committee approved commerciality
- In November 2014, MC approved extension of
block
declaration on July 9, 2014.
appraisal thus regularising the extended well testing of
(Carin: 49%)
- Operatorship for development transferred to ONGC as per Nagayalanka-1zST and drilling of Nagayalanaka-NW-1z.
the PSC and preparation of Development Plan underway.
2 KG-OSN-2009/3
block
(Carin: 100%)
- Processing of recently acquired 3D seismic survey is
complete and delivery of fast track volume is expected soon.
Planning underway for additional 3D/2D from January 2015.
- Planning a four well drilling campaign.
- 934 sqkm 3D data acquired, interpretation focused
upon building a high quality prospect inventory.
- Upon completion of interpretation, planning for a
four well drilling campaign will begin.
- Site survey data acquisition, required to complete
drilling planning, is expected in mid-2015.
3 MB-DWN-2009/1 - 2,128 line-km of 2D broadband seismic has been acquired - Processing of 2,128 line km of 2D broadband seismic
block (Carin:
and processing of the same has begun.
on track and expected to be delivered in Q4 FY15.
100%)
- Planning to acquire addl 500sqkm of 3D data.
- Regional work is ongoing and options for acquisition
of 3D seismic data are pending the outcomes of the 2D
interpretation.
4 PR-OSN-2004/1
- Excusable delay granted in August 2014 by MoPNG and
- Revised date of the expiry of Phase-1 is expected to
block
further extension of Exploration Phase-1 pending with
be 30th June 2017.
(Carin: 35%)
regulators.
- Planning for three well drilling program is underway
- Planning 3-well program; reprocessing of vintage 503km2 and reprocessing of vintage 503sqkm Palar 3D seismic is
planned for Q4 FY15.
Palar 3D seismic planned for 3QFY15.
5 Srilanka Block SL - Discussions with Sri Lankan govt. over the commercial
2007-01-001
terms still under progress.
(Carin: 100%)
- Commercialization of gas discoveries continues to
present challenges.
- Refining technical evaluation of remaining prospects
that could ultimately add to discovered resource base.
- Cairn plans to commence 3D seismic reprocessing in
the current quarter.
6 South Africa Block - Interpretation of 3D seismic continues and a robust
- Exploration prospects identified based on 2013 3D
1
prospect inventory is now identified.
seismic survey, which covers oil prone outboard portion
(Carin: 60%)
- Focus remains on outboard portion of the block which is of Block 1.
interpreted as oil prone.
- In current quarter, Cairn plans to progress well- Environmental clearances and other planning activities are planning and necessary environmental clearances to
under process to enable exploration drilling by early 2016. enable exploratory drilling in 2016.
Source: Company, MOSL
22 January 2015
7
Cairn India
Valuation and view







Key event to watchout would be CAIR’s realignment of the capex plan in view of
sharp fall in the crude prices and likely impact on the production guidance.
Other events to watch out are (1) Rajasthan production trend, (2) Updates on
reserves and (3) Update on other exploration blocks and (4) clarity on Rajasthan
PSC extension.
With cash at INR178b and USD1.25b loan to parent, to watch out for future cash
utilization.
As against current Rajasthan production of ~180kbps, CAIR’s production
guidance of 7-10% looks challenging and we model ~6% CAGR in our estimates
with FY16/FY17 at 197/215kbpd respectively.
As cut our Brent price assumption for FY16/17 from USD75/85/bbl to
USD60/70/bbl resulting in 26% cut in FY16/17 estimates.
We maintain absolute dividend of INR12.5/sh in FY15 but continue to model
20% payout from FY16.
The stock trades at 10.7x FY16E EPS of INR22.4 and has dividend yield of ~5%
(based on fixed payout). Our SOTP based fair value stands at INR250 (v/s INR275
earlier), Maintain Neutral.
Exhibit 11: Cairn India: Key Assumptions
Y End: March 31
Exchange Rate (USD/INR)
Brent Crude Price (USD/bbl)
Disc. for Rajasthan Crude (USD/bbl)
Rajasthan net realization (USD/bbl)
FY11
45.6
86.7
12.0%
76.3
FY12
47.9
114.5
9.4%
103.7
FY13
54.5
110.5
11.0%
98.3
FY14
60.6
107.6
11.4%
95.3
FY15E
61.0
84.5
10.6%
75.5
FY16E
62.0
60.0
10.6%
53.6
FY17E
62.0
70.0
10.6%
62.6
Rajasthan gross production (kbpd)
Rajasthan Cess (INR/MT)
Govt. sharing (%)
99
2,625
0%
128
2,625
10%
170
4,635
20%
181
4,635
30%
177
197
215
4,635 4,635 4,635
40%
40%
40%
Source: Company, MOSL
Exhibit 12: Cairn India SOTP: We value Cairn at INR250/sh
Source: MOSL
22 January 2015
8
Cairn India
Story in Charts
Exhibit 13: Well diversified portfolio with assets ranging from Exhibit 14: Cairn’s pipeline gives access to majority of
exportation to production as well as 2 overseas assets
domestic refineries as well as export option
Source: Company, MOSL
Source: Company, MOSL
Exhibit 15: Cairn has continually upgraded in-place
resource base
Source: Company, MOSL
22 January 2015
Exhibit 16: …as well as estimated
(mmboe)
ultimate
recovery
Source: Company, MOSL
9
Cairn India
Exhibit 17: …however Mangala decline, slower Bhagyam
ramp-up, halted Rajasthan production ramp-up in FY15
170
181
197
177
Exhibit 18: Management vision to produce 300kbpd at
Rajasthan
215
300
128
170
99
99
181
177
197
215
128
9
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY10 FY11 FY12 FY13 FY14 FY15EFY16EFY17E
Source: Company, MOSL
Exhibit 19: Cairn’s Rajasthan
discoveries till date
block
has
reported
30
Vision
Source: Company, MOSL
Exhibit 20: Correlation between Cairn stock price and Brent
Crude Price
400
Cairn stock price (INR/sh)
Brent (USD/bbl) - RHS
200
300
150
200
100
100
50
-
Jan-07
Jan-11
Jan-09
Jan-13
Source: Company, MOSL
Target Price
Exhibit 22: 1 Yr Fwd Cairn India P/B Chart
Source: Company, MOSL
22 January 2015
0.7
0.7
May-14
Oct-13
Mar-13
Jul-12
0.6
Dec-11
250
1.6
1.2
0.9
Apr-11
7.7
Avg(x)
1.2
1.2
Sep-10
0
8
Peak(x)
Min(x)
1.5
Feb-10
0.0
0.3
PB (x)
Median(x)
1.8
Jun-09
INR/sh
128
3
2
75
(34)
242
Nov-08
Rajasthan (incl. Barmer Hill)
Ravva
Cambay
Investments
Less: Net Debt / Add (Cash)
Base Value
Potential Upsides
Rajasthan resources (Prospective)
KG-Onland (Discovered)
USDb
3.9
0.1
0.1
2.3
(1.0)
7.5
Source: Company, MOSL
Mar-08
Exhibit 21: We value Cairn on SOTP basis at INR250/sh
Jan-15
Jan-15
FY11
Source: Company, MOSL
10
Cairn India
Corporate profile
Company description
Exhibit 23: Sensex rebased
Cairn India, an E&P company, listed in January 2007
through an IPO after it spun off from its parent Cairn
Energy Plc. Cairn Energy sold its majority stake to
Vedanta group making it a parent with ~60% stake. Cairn
has working interest in 9 E&P blocks. Ravva and Cambay
blocks produce about 34kboepd (Cairn WI 9.2kbpd). The
Rajasthan block, which accounts for ~80% of Cairn’s
reserves, produced at ~191kbpd (Cairn WI ~ 134kbpd) in
4QFY14.
Exhibit 24: Shareholding pattern (%)
Dec-14
Exhibit 25: Top holders
Sep-14
Dec-13
Promoter
59.9
59.9
58.8
DII
10.7
9.8
10.4
FII
15.3
16.8
16.3
Others
14.1
13.5
14.6
Holder Name
% Holding
Cairn UK Holdings Ltd
LIC of India
9.8
9.1
Note: FII Includes depository receipts
Exhibit 26: Top management
Exhibit 27: Board of director
Name
Designation
Name
Name
Navin Agarwal
Chairman
Navin Agarwal
Naresh Chandra*
Mayank Ashar
Managing Director & CEO
Mayank Ashar
Tarun Jain
Sudhir Mathur
CFO
Aman Mehta*
Priya Agarwal
Mike Yeager
Chairman, Operations
Review Board
Omkar Goswami*
Neerja Sharma
Darran Lucas
Director, Exploration
Edward T Story*
*Independent
Exhibit 28: Auditors
Exhibit 29: MOSL forecast v/s consensus
Name
Type
S R Batliboi & Co LLP
Statutory
Nessr & Associates
Secretarial Audit
Shome & Banerjee
Cost Auditor
22 January 2015
EPS (INR)
FY15
FY16
FY17
MOSL forecast
39.0
22.4
23.1
Consensus
forecast
45.2
38.3
34.1
Variation (%)
-13.7
-41.6
-32.3
11
Cairn India
Financials and valuations
(INR Million)
Income Statement
Y/E March
Net Sales
Change (%)
Change in Stock
Employee Costs
Operating Costs
EBITDA
% of Net Sales
2010
16,230
13.3
-366
1,102
5,689
9,805
60.4
2011
102,779
533.3
-264
1,105
16,709
85,228
82.9
2012
131,130
27.6
-263
861
22,475
108,056
82.4
2013
175,241
33.6
-274
1,033
39,603
134,880
77.0
2014
187,617
7.1
-141
2,741
44,233
140,784
75.0
2015E
148,274
-21.0
-331
2,000
48,514
98,091
66.2
2016E
134,447
-9.3
0
2,300
58,924
73,223
54.5
2017E
153,800
14.4
0
2,645
66,837
84,318
54.8
D,D&A (incl. w/off)
Interest
Other Income
EBIT
Forex Fluctuations
Exceptional Item
PBT
Tax
Rate (%)
Adjusted PAT
Change (%)
-3,570
-295
3,505
9,446
718
0
10,164
-348
-3.7
10,511
30.1
-13,596
-2,909
1,288
70,011
-1,112
0
68,899
5,556
7.9
63,343
502.6
-17,391
-2,220
3,194
91,639
6,148
-13,552
84,235
4,857
5.3
92,929
46.7
-23,008
-687
7,228
118,414
3,134
1,888
123,436
2,351
2.0
119,198
28.3
-27,098
-415
7,834
121,106
7,390
0
128,496
4,178
3.4
124,318
4.3
-37,167
-168
13,151
73,906
6,927
0
80,834
7,685
10.4
73,148
-41.2
-43,554
0
15,846
45,516
0
0
45,516
3,528
7.8
41,988
-42.6
-47,111
0
17,229
54,437
0
0
54,437
11,151
20.5
43,286
3.1
2010
18,970
319,714
338,683
34,007
4,619
377,310
2011
19,019
383,913
402,932
26,782
5,750
435,465
2012
19,074
463,847
482,921
0
6,841
489,762
2013
19,102
457,892
476,994
0
4,641
481,635
2014
19,076
555,301
574,377
0
7,356
581,733
2015E
18,746
592,023
610,769
0
8,834
619,603
2016E
18,746
606,064
624,810
0
8,606
633,416
2017E
18,746
639,033
657,780
0
8,334
666,114
1,270
4,995
91,635
59,236
20,850
39,819
59,294
30,207
45,002
60,645
33,366
43,850
60,193
38,644
56,969
56,349
32,979
95,792
51,897
24,196
131,956
46,836
13,277
141,307
253,193
17,124
253,193
10,945
253,193
18,356
151,889
103,823
151,922
163,638
151,922
143,105
151,922
143,105
151,922
143,105
2,909
3,067
9,294
8,462
3,277
14,829
44,847
16,655
8,268
14,968
70,135
35,010
6,420
22,852
55,568
61,600
56,798
25,124
17,619
86,002
22,343
20,311
27,234
176,360
20,259
18,417
14,669
180,456
23,175
21,068
57,781
180,456
9,869
4,937
8,928
377,310
12,638
16,628
50,342
435,465
24,828
19,946
83,608
489,762
17,399
40,978
88,063
481,635
27,166
48,009
110,367
581,733
54,841
51,951
139,455
619,603
49,727
53,735
130,340
633,416
56,885
55,930
169,667
666,114
Balance Sheet
Y/E March
Share Capital
Reserves & Surplus
Net Worth
Total Loans
Deferred Tax
Capital Employed
Net Fixed Assets
Prod. Proper.(net of depletion)
Capital WIP
Goodwill
Investments
Curr. Assets, L & Adv.
Inventory
Debtors
Cash & Bank Balance
Loans & Adv. and Other CA
Current Liab. & Prov.
Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
22 January 2015
(INR Million)
12
Cairn India
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Adjusted EPS
Cash EPS
Book Value
Adj. Book Value
DPS
Payout (incl. Div. Tax.)
2010
2011
2012
2013
2014
2015E
2016E
2017E
5.5
5.5
6.3
178.1
44.9
0.0
0.0
33.3
33.3
39.6
211.9
78.7
0.0
0.0
41.6
48.7
49.2
253.2
120.4
0.0
0.0
63.1
63.1
72.8
249.7
170.2
11.5
21.6
65.2
65.2
77.2
301.1
221.5
12.5
22.5
39.0
39.0
46.6
325.8
244.8
12.5
38.2
22.4
22.4
40.7
333.3
252.3
4.6
24.6
23.1
23.1
42.8
350.9
269.8
4.8
24.6
5.7
4.9
3.5
10.7
0.9
0.0
3.8
3.3
2.2
7.6
1.0
4.8
3.7
3.1
2.0
6.4
0.8
5.2
6.1
5.1
2.9
6.4
0.7
5.2
10.7
5.9
4.1
6.6
0.7
1.9
10.3
5.6
3.0
5.7
0.7
2.0
Valuation (x)
P/E
Cash P/E
EV / EBITDA
EV / BOE (in USD, 1P basis)
Price / Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
3.2
2.6
17.1
17.9
21.0
20.3
24.8
24.5
23.6
22.9
12.3
12.3
6.8
7.3
6.7
8.4
Turnover Ratios
Debtors (No. of Days)
Fixed Asset Turnover (x)
52
7.3
32
1.5
41.5
1.8
39.4
2.1
46.7
2.1
50.0
1.5
50.0
1.3
50.0
1.4
Cash Flow Statement
Y/E March
Profit /(Loss) before Tax
Depreciation
Other op activities
Direct Taxes Paid
(Inc)/Dec in Wkg. Capital
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Investments
Interest & dvd received
CF from Inv. Activity
Change in Equity
Inc / (Dec) in Debt
Other fin, activities
Dividends Paid
CF from Fin. Activity
Inc / ( Dec) in Cash
Add: Opening Balance
Closing Balance b/f deposit
Bank deposit
Closing Balance
22 January 2015
(INR Million)
2010
10,164
1,780
-2,012
-1,753
-7,082
1,097
-33,662
25,194
2,360
-6,108
20
-8,713
-1,760
0
-10,453
-15,464
21,733
6,269
3,025
9,294
2011
68,900
12,226
4,935
-12,592
-10,088
63,381
-25,648
-24,438
903
-49,183
670
-7,348
-2,052
0
-8,730
5,468
6,223
11,691
33,156
44,847
2012
84,235
14,709
-6,915
-21,291
-29
70,710
-29,558
-196
2,449
-27,306
566
-14,419
-1,363
0
-15,216
28,188
11,467
39,656
30,480
70,135
2013
121,548
18,873
-1,448
-22,687
-5,730
110,556
-16,313
-117,506
3,238
-130,581
589
-12,500
-968
-11,098
-23,977
-44,002
44,463
462
55,106
55,568
2014
128,496
23,545
-773
-26,227
-14,113
110,928
-28,733
-55,700
3,142
-81,291
-945
0
-358
-27,939
-29,242
395
463
858
16,762
17,619
2015E
80,834
30,519
4,632
-6,207
-19,474
90,303
-66,482
20,533
2,016
-43,933
-11,055
0
0
-25,701
-36,756
9,614
17,619
27,234
2016E
45,516
34,246
6,690
-3,755
-3,449
79,248
-66,482
0
2,617
-63,865
0
0
0
-27,947
-27,947
-12,564
27,234
14,669
2017E
54,437
36,990
6,167
-11,423
3,785
89,956
-40,482
0
3,954
-36,529
0
0
0
-10,316
-10,316
43,112
14,669
57,781
27,234
14,669
57,781
13
Disclosures
This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be
distributed by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does
Cairn
not constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon
it. ThisIndia
report is not
for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal
recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider
whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as
up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a
some companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or
its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this
material may educate investors on investments in such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other
parties for the purpose of gathering, applying and interpreting information. Our research professionals are paid on the profitability of MOSt which may include earnings from investment banking and other business.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders,
and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary
trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing
among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position
in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation
or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with
respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations
made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as
such, may not match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set
of customers having various objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or
employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of
its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is
based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions
provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or
summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to
update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way
responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time,
any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on
this report or for any necessary explanation of its contents.
Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any
compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.
Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities
mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the
report.
Motilal Oswal Securities Limited is under the process of seeking registration under SEBI (Research Analyst) Regulations, 2014.
There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be
directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation
of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
 Analyst ownership of the stock
 Served as an officer, director or employee
CAIRN INDIA
No
No
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In
addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the
United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or
intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the
"Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning
agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this
chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL,
and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to
accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email : anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65)68189232
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931
Motilal Oswal Securities Ltd
22 January 2015
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
14