28 October 2010

BSE Sensex: 19941

Rs317
Cairn India OUTPERFORMER

RESULT NOTE Mkt Cap: Rs602bn; US$13.5bn

Analyst: Probal Sen (91-22-6622 2569; probal.sen@idfc.com)

Ramnath S (91-22-6622 2570; ramnath.s@idfc.com)
Result: Q2FY11
Comment: Ahead of estimates led by higher production from MBA fields

Key valuation metrics

Year to Mar 31 (Rs m) Net sales yoy chg (%) Net profit EPS (Rs) yoy chg (%) PER (x) EV/E (x)
CY07 10,122.6 NM (245.5) (0.1) NM NM 271.5
2009-15M 14,326.7 0.4 8,034.9 3.4 NM 93.4 108.0
2010 16,230.3 0.1 10,511.1 5.5 63.1 57.3 81.1
2011E 72,636.3 3.5 41,946.7 22.1 299.1 14.3 11.2
2012E 131,985.7 0.8 74,886.6 39.5 78.5 8.0 5.9

Key highlights
™ Revenues increased by 1069% yoy to Rs26.9bn, higher than our estimate of Rs23bn. This is primarily because
production from Rajasthan at 81kb/d (net) was higher than estimates with actual sales for Cairn overall also being
higher (93 kb/d, vs our estimate of 90.5kb/d).
™ Total production (gross) from all assets grew by 227% for oil and 2% for gas driven by continued ramp up in Mangala
(MBA) production. We expect production to grow further as MBA ramps up to the expected plateau of 150 kb/d over
the next few quarters. We expect the increase to 175 kb/d to happen sometime in H2CY11.
™ EBITDA margin of 78.5% was up 2550bps yoy, driven by a higher proportion of crude oil in the total portfolio. Cairn
has also seen operating costs per barrel (opex/bbl) come down to US$2.5/bbl from US$6/bbl with growth in MBA
volumes.
™ Net realization for crude oil sold in the quarter was US$69.5/bbl, in line with estimates, implying a discount of ~13.5%
on Brent for the quarter. Overall net realization (including for gas) was US$67.8/bbl, compared with US$59.6/bbl in
Q2FY10.
™ Gas volumes of 80mmscfd have shown impressive resilience even though the Ravva and Lakhsmi/Gauri fields are old
assets undergoing a steady natural decline.
™ Overall, net profit before extraordinary items came in at Rs15.8bn, about 238% higher yoy and ahead of our estimate
of Rs13.5bn.

‰ Volumes continue growth trajectory, more strength ahead

CIL has obviously shown a very healthy growth in gross and net production in the quarter backed by the impressive
ramp up in MBA production. However, equally creditable is the performance of the older fields in its portfolio, i.e.,
Ravva and CB-OS/2, which continue to perform above expectations despite facing a significant natural decline. The
Ravva field in particular is a good example of CIL’s skills at managing and extracting every possible molecule from an oil
and gas reservoir, and lends comfort on the guidance for the EOR potential of MBA fields.

IDFC Securities Ltd.

Naman Chambers, C-32, G- Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400 051 Tel: 91-22-6622 2600 Fax: 91-22-6622 2501

“For Private Circulation only” and “Important disclosures appear at the back of this report”
 IDFC Securities

CIL: production growing exponentially

OIL- Ravva OIL- CB OIL- MBA
90,000

60,000

30,000

0
Q1CY07 Q2CY07 Q3CY07 Q4CY07 Q1CY08 Q2CY08 Q3CY08 Q4CY08 Q1CY09 Q2CY09 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11

Source: IDFC Securities Research, Company

CIL: Crude oil gaining prominence in portfolio

Oil (b/d - LHS) Gas (mmscfd - RHS)
100,000 50.0

75,000 40.0

50,000 30.0

25,000 20.0

0 10.0
Q1CY07 Q2CY07 Q3CY07 Q4CY07 Q1CY08 Q2CY08 Q3CY08 Q4CY08 Q1CY09 Q2CY09 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11

Source: IDFC Securities Research, Company

‰ Realizations stay healthy

Cairn has managed to keep realizations steady on per bbl basis, and we expect that in an environment where crude
demand and, thereby, crude prices are expected to follow an upward trajectory going forward, CIL’s realizations will
continue to show a rising trend for oil. CIL should improve its overall realizations too as crude would form a larger part
of the production mix.

CIL average realizations

Average Realisation -OIL -US$/bbl Average Realisation - oil + gas
140

110

80

50

20
Q1CY07 Q2CY07 Q3CY07 Q4CY07 Q1CY08 Q2CY08 Q3CY08 Q4CY08 Q1CY09 Q2CY09 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11

Source: IDFC Securities Research, Company

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 IDFC Securities

CIL Revenue, EBITDA and PAT trends

Revenue (Rs m - LHS) EBITDA (Rs m - RHS) PAT (Rs m - RHS)
28,000 24,000

21,000 18,000

14,000 12,000

7,000 6,000

0 0
Q1CY08 Q2CY08 Q3CY08 Q4CY08 Q1CY09 Q2CY09 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11

Source: IDFC Securities Research, Company

‰ Valuations & View

CIL continues to make very good progress on delivering on its guidance of achieving plateau production of 125-150 kb/d
from its Mangala asset of the Mangala, Bhagyam & Aishwariya (MBA) fields. It has already ramped up to 125 kb/d in
October and we expect Q3 to see average volumes exceeding 120 kb/d from the MBA asset. We, therefore, believe that the
company is set for better things ahead, as the ramp up from Mangala alone is set to exceed earlier management guidance.
The Ravva and CB-ON blocks continue to exceed estimates on useful life and recoverable reserves, which underpins our
belief in the company’s ability to execute EOR/IOR activities with a great deal of acumen. We adjust our EPS numbers for
FY11 upwards by 9% to reflect the faster ramp up and higher net realizations. Reiterate Outperformer with a price target
of Rs354/share, implying an 11% upside from current levels.

Quarterly results
Financials, Rs mn Q1CY09 Q2CY09 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
Revenues 1,818 2,050 2,298 4954.6 6928.3 8406 26864
Operating expenses 1,647 1,037 1,082 1,922 4,469 2,668 5,780
EBITDA 171 1,012 1,216 3,032 2459.3 5,738 21,084
% margin 9.4 49.4 52.9 61.2 35.5 68.3 78.5
Interest 21 7 9 260 18.8 492.6 1280.9
DD&A 443 413 391 300 381.6 1659.5 2756.1
Other income 862 1,290 1,056 999 879.1 280.7 282
Exceptional Item 0 1,637 1,637 0
PBT 569 245 3,510 3,471 2,938 3,866 17,329
Tax 378 (210) (1,185) 562 486.1 1052.2 1478.1
PAT 190 455 4,695 2,910 2,452 2,814 15,851
Growth (yoy, %)
Net Sales (42.5) (49.2) (28.3) 135.0 281.2 310.1 1,069.1
EBITDA (91.8) (55.9) (44.7) 427.7 1,340.7 466.7 1,634.3
Other Income 131.0 123.1 (48.6) (31.2) 2.0 (78.2) (73.3)
Interest 547.4 (74.6) 87.2 4,162.3 (11.7) 6,647.9 14,455.7
Depreciation (29.9) (36.2) (39.9) (8.0) (13.9) 301.8 605.8
PBT (68.8) (88.9) (2.5) 104.9 416.7 1,480.0 393.7
PAT (83.6) (67.2) 60.1 23.1 1,187.8 518.9 237.6
Reported PAT (83.6) (67.2) 60.1 23.1 1,187.8 518.9 237.6

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 IDFC Securities

Analyst Sector/Industry/Coverage E-mail Tel. +91-22-6622 2600

Pathik Gandotra Head of Research; Financials, Strategy pathik.gandotra@idfc.com 91-22-662 22525
Shirish Rane Construction, Power, Cement shirish.rane@idfc.com 91-22-662 22575
Nikhil Vora FMCG, Media, Mid Caps, Education, Exchanges nikhil.vora@idfc.com 91-22-662 22567
Ramnath S Automobiles, Auto ancillaries, Real Estate, Oil & Gas ramnath.s@idfc.com 91-22-662 22570
Nitin Agarwal Pharmaceuticals nitin.agarwal@idfc.com 91-22-662 22568
Chirag Shah Metals & Mining,Telecom, Pipes, Textiles chirag.shah@idfc.com 91-22-662 22564
Bhoomika Nair Logistics, Engineering bhoomika.nair@idfc.com 91-22-662 22561
Hitesh Shah, CFA IT Services hitesh.shah@idfc.com 91-22-662 22565
Bhushan Gajaria Retailing bhushan.gajaria@idfc.com 91-22-662 22562
Salil Desai Construction, Power, Cement salil.desai@idfc.com 91-22-662 22573
Ashish Shah Construction, Power, Cement ashish.shah@idfc.com 91-22-662 22560
Probal Sen Oil & Gas probal.sen@idfc.com 91-22-662 22569
Chinmaya Garg Financials chinmaya.garg@idfc.com 91-22-662 22563
Aniket Mhatre Automobiles, Auto ancillaries aniket.mhatre@idfc.com 91-22-662 22559
Abhishek Gupta Telecom, Metals & Mining abhishek.gupta@idfc.com 91-22-662 22661
Ritesh Shah Pharmaceuticals ritesh.shah@idfc.com 91-22-662 22571
Saumil Mehta Metals, Pipes saumil.mehta@idfc.com 91-22-662 22578
Vineet Chandak Real Estate vineet.chandak@idfc.com 91-22-662 22579
Kavita Kejriwal Strategy, Financials kavita.kejriwal@idfc.com 91-22-662 22558
Anamika Sharma IT Services anamika.sharma@idfc.com 91-22-662 22680
Varun Kejriwal FMCG, Mid Caps varun.kejriwal@idfc.com 91-22-662 22362
Swati Nangalia Mid Caps, Media, Exchanges, Education swati.nangalia@idfc.com 91-22-662 22576
Sameer Bhise Strategy, Financials sameer.bhise@idfc.com 91-22-662 22574
Nikhil Salvi Construction, Power, Cement nikhil.salvi@idfc.com 91-22-662 22566
Shweta Dewan Mid Caps, Education, FMCG shweta.dewan@idfc.com 91-22-662 22577
Dharmendra Sahu Database Analyst dharmendra.sahu@idfc.com 91-22-662 22580
Rupesh Sonawale Database Analyst rupesh.sonawale@idfc.com 91-22-662 22572
Dharmesh R Bhatt, CMT Technical Analyst dharmesh.bhatt@idfc.com 91-22-662 22534
Equity Sales/Dealing Designation E-mail Tel. +91-22-6622 2500
Naishadh Paleja MD, CEO naishadh.paleja@idfc.com 91-22-6622 2522
Paresh Shah MD, Dealing paresh.shah@idfc.com 91-22-6622 2508
Vishal Purohit MD, Sales vishal.purohit@idfc.com 91-22-6622 2533
Nikhil Gholani MD, Sales nikhil.gholani@idfc.com 91-22-6622 2529
Sanjay Panicker Director, Sales sanjay.panicker@idfc.com 91-22-6622 2530
Rajesh Makharia Director, Sales rajesh.makharia@idfc.com 91-22-6622 2528
Nirbhay Singh SVP, Sales nirbhay.singh@idfc.com 91-22-6622 2595
Suchit Sehgal AVP, Sales suchit.sehgal@idfc.com 91-22-6622 2532
Pawan Sharma MD, Derivatives pawan.sharma@idfc.com 91-22-6622 2539
Jignesh Shah AVP, Derivatives jignesh.shah@idfc.com 91-22-6622 2536
Suniil Pandit Director, Sales trading suniil.pandit@idfc.com 91-22-6622 2524
Mukesh Chaturvedi SVP, Sales trading mukesh.chaturvedi@idfc.com 91-22-6622 2512
Viren Sompura SVP, Sales trading viren.sompura@idfc.com 91-22-6622 2527
Rajashekhar Hiremath VP, Sales trading rajashekhar.hiremath@idfc.com 91-22-6622 2516

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