Cairn India recorded net sales of Rs44.4bn for Q2 FY13 which was ~4.5% lower than our estimates.
|(Rs m)||Q2 FY13||Q2 FY12||% yoy||Q1 FY13||% qoq|
|Inc/(dec) in stock||76||37||104.0||180||(57.9)|
|OPM (%)||77.7||79.3||(165) bps||78.7||(97) bps|
|Extra ordinary items||(7,858)||(8,241)||(4.7)||8,663||(190.7)|
|Effective tax rate (%)||2.9||11.9||3.2|
|PAT margin (%)||52.3||28.8||-||86.2||-|
|Ann. EPS (Rs)||48.7||16.1||202.5||80.2||(39.3)|
Topline lower than estimates
Cairn India recorded net sales of Rs44.4bn for Q2 FY13 which was ~4.5% lower than our estimates. The crude realizations came in lower than our estimates on back of increased discount to the Brent (10.8% in Q2 FY13 vis-à-vis 7.3% in Q1 FY13). On a yoy comparison the topline grew a healthy 67.5% on back of increased production from Rajasthan block. During the quarter, working interest production volumes were at 129,431boepd v/s 99,220boepd in Q2 FY12 and 127,226boepd in Q1 FY13. The crude realization at US$98.1/bbl was 4.5% down yoy and the gas realizations at US$4.6/mscf were 2.2% higher yoy.
OPM falls 165bps yoy and 97bps sequentially
Operating margins were lower by 165bps yoy and 97bps sequentially. The decline in OPM on a yoy basis was attributed to royalty costs and higher cess payments. Other income came in exceptionally high at Rs2.2bn on back of one time income received (Rs1.17bn) through 10% divestment of stake in KG-DWN-98/2 block to JV partner ONGC. Pre-exceptional PAT was reported at Rs31.1bn, however forex losses made to the tune of Rs7.86bn (vis-à-vis a forex gain of Rs8.6bn in Q1 FY13) resulted in 39.3% qoq decline in reported PAT. The tax rate was lower on account of creation of deferred tax asset.
Key takeaways from the conference call
We are now more convinced of Cairn India achieving a higher than 175,000bopd of peak production over the medium term. Considering this, the stock currently seems to be factoring in a long term crude oil average price of US$75/bbl against our expectation of US$90/bbl. Additionally, the company has guided for a liberal dividend policy. Hence we maintain our BUY rating with a 9-month price target of Rs380.
|Y/e 31 Mar (Rs m)||FY11||FY12||FY13E||FY14E|
|yoy growth (%)||541.4||15.6||31.1||12.5|
|yoy growth (%)||440.1||25.3||18.5||15.8|
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