News Detail

Cairn India Ltd posted a 17 Percent year-on-year increase in consolidated revenue to INR 5,000 crore last quarter, 7.5 Percent higher compared to the September quarter and in line with Street expectations.

Average price realisation remained flat on a year-on-year basis and slightly lower sequentially. Revenue growth was, therefore, helped primarily by higher production in the December quarter. Also, average gross production from Cairn India’s Rajasthan block increased by 6 Percent last quarter over the September quarter, which was encouraging. Production was helped by 42 new wells that were brought on line during the December quarter.

However, revenue growth did not translate into commensurate net profit growth. Cairn India’s net profit for the December quarter declined by 14 Percent from the same period last year to INR 2,884 crore. Profitability was affected by higher exploration and employee costs, foreign exchange loss, lower other income and higher depreciation.

The Cairn India stock currently trades at 5.4 times its estimated earnings for the next financial year. Clearly, valuations are not at all demanding. However, meaningful upsides could be at bay for some time, although the company’s buy-back plan soothes cash utilization concerns to some extent. As an IIFL Research report pointed out, “Cairn maintained total capex guidance of $3 billion for FY14-16. It has spent only $305 million in Rajasthan in 9MFY14 and is likely to end the year at $500 million. With net cash position of $3.5 billion and annual free cash flow generation of $1.5 billion after meeting capital expenditure, lack of clarity on use of cash remains a concern.”

At the end of 2013, Cairn India had cash and cash equivalents to the tune of INR 13,000 crore in rupee funds and about $1.45 billion in dollar funds, which will be partly used for the company’s buy-back plan. In comparison, the company’s latest market capitalisation stands at INR 61,989 crore.

Meanwhile, for the Rajasthan block, the company maintains its exit production guidance for this fiscal year at 200,000 barrels of oil equivalent per day (boepd). Investors would do well to keep a tab on the progress on the Rajasthan production guidance and news flow on other exploration blocks, as they are some triggers that could improve sentiment for the stock.

Source-On Request