Cairn India recorded net sales of Rs43.6bn for Q4 FY13 which was in line with our estimates.
Net sales at Rs43.6bn grew 19.5% yoy was in line with expectations. Net working interest production for Q4 FY13 at 126,623boepd, an increase of 18% yoy
Realization for Rajasthan crude was in line with the management guidance of 10-15% discount to Brent. Management has cut its guidance of discount to 8-13% of Brent
Bhagyam production expected to be ramped up to 40,000bopd by H2 FY14
Mangala production to be maintained at about 150,000bopd in FY14 with drilling of infill wells and commencement of EOR subject to approvals
Company has guided for a capex of US$3bn over the next three years
A final dividend of Rs6.5/share was declared taking the total dividend to Rs11.5/share
Maintain BUY with a 9-month price target of Rs360
|(Rs m)||Q4 FY13||Q4 FY12||% yoy||Q3 FY13||% qoq|
|Inc/(dec) in stock||32||168||(81.1)||(13)||(342.0)|
|OPM (%)||74.7||81.6||(698) bps||76.8||(215) bps|
|Extra ordinary items||(28)||(2,170)||(98.7)||4,245||(100.7)|
|Effective tax rate (%)||2.2||7.4||1.0|
|PAT margin (%)||58.8||59.9||(112) bps||78.2||(1,944) bps|
|Ann. EPS (Rs)||53.7||45.8||17.1||70.1||(23.4)|
Topline in line with estimates
Cairn India recorded net sales of Rs43.6bn for Q4 FY13 which was in line with our estimates. The crude realizations were at a discount of 10.7% to Brent price for FY13 and the company has revised its guidance of discount from 10-15% earlier to 8-13%. On a yoy comparison the topline grew a healthy 19.5% on back of increased production from Rajasthan block. During the quarter, working interest production volumes were at 126,623boepd v/s 107,292boepd in Q4 FY12 and 128,058boepd in Q3 FY13. The crude realization at US$100.6/bbl was down 8% yoy and the gas realizations at US$5.1/mscf were higher by 16% yoy.
OPM falls 698bps yoy and 215bps sequentially
Operating margins were lower by 698bps yoy and 215bps sequentially. The decline in OPM on a yoy basis was attributed to royalty costs and higher cess payments. Other income came in high at Rs2.2bn on back high cash balance of US$3bn. PAT was reported at Rs25.6bn, which was lower than our estimate of Rs27.3bn. The under performance was mainly on back of higher than estimated exploration write offs. The company wrote off Rs3.6bn worth of exploration expenses. While Rs2.6bn was towards Sri Lankan block, Rs726mn was towards completion of 80% of 3-D seismic survey in the South African block.
Key takeaways from the conference call
Production guidance: Management maintained FY14 exit rate guidance at 200,000-215,000bopd from the Rajasthan field. On Mangala, approval for 48 infill wells is pending at MC level and technical alignment is in place for the enhanced recovery program. With these approvals expected, company sees Mangala to hold the plateau rate of 150,000bopd through FY14. On Bhagyam, post the 66 wells drilled there is subsequent approvals for ~30 more wells which will enable the field to hit the ~40,000bopd mark in H2 FY14. On Barmer hill, technical alignment at OC level is expected by the company.
Capex guidance: Net capex for the next three years is estimated to be US$3bn, of which 80% would be for Rajasthan block. Of the US$2.4bn for Rajasthan block, 40% would be targeted for production sustenance, 25% on RJ exploration and the rest 15% on Barmer hill and satellite fields.
Management also informed at steps being taken to work upon an integrated development plan for the field which would fasten the approval process with the government.
For FY14, the profit petroleum is expected to be at 30% for DA-1 and 20% for DA-2.
The current field direct operating cost is at US$2.4/bbl.
Currently, drilling operations in the Rajasthan block are progressing with two drilling and two completion rigs. The JV has already contracted two more drilling rigs which are expected to arrive and commence operations during Q1 FY14. The JV plans to contract five additional drilling rigs later this year to support the targeted work programs.
Crude oil sales arrangements have been finalized for volumes in excess of 200,000 bopd with PSU and private refiners for FY14.
The company plans to undertake an aggressive exploration and appraisal drilling program in the Rajasthan block with 100 wells planned in the next three years. Additional 3D seismic data acquisition and processing is also planned during the period, which will cover more than 50% of the block area.
Status of other exploration blocks
KG-ONN-2003/1: Appraisal drilling to commence shortly
• ‘High Value – High Risk’ prospect drilling in H2 FY14
• 3 well infill drilling campaign to tap the by-passed oil planned in H2 FY14
Other Indian Assets
KG-OSN-2009/3: Approval to carry out petroleum operations in 60% of block area with certain conditions
Significant progress towards resumption of exploration activity in PR-OSN-2004/1 & MB-DWN-2009/1
Sri Lanka: Options to monetize the discovered gas resources are under evaluation
South Africa: 3D seismic data acquisition ongoing; 80% completed
Maintain BUY rating with a target price of Rs360
While some delays have cropped up in terms of near term ramping up of Bhagyam production but the company is confident of achieving the same by H2 FY14. Over the next one year, possible announcements such as reserve estimates in Sri Lanka block, new discoveries in Rajasthan field, utilization of huge cash on the balance sheet will be the triggers for the stock. Cairn continues to be one of our top picks in the oil & gas space. We maintain our BUY recommendation with a price target of Rs360.
|Y/e 31 Mar (Rs m)||FY12||FY13||FY14E||FY15E|
|yoy growth (%)||15.6||47.8||(5.7)||6.3|
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