report_1370333779

8/10/2019 report_1370333779

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8/10/2019 report_1370333779


CAIRN INDIA LTD: ‘BUY’

Business Summary

Cairn India is part of the Vedanta Group, a globally diversified naturalresources group with wide ranging interests in aluminum, copper, zinc,lead, silver, iron ore, etc.Cairn India is one of the largest private exploration and production

companies currently operating in India.Cairn has been operating in India for more than 15 years and has playedan active role in developing the oil and gas resources in the country.Ravva in eastern India was the first offshore oil and gas field to bedeveloped, followed by the Lakshmi gas field in western India, whichwas discovered in 2000 and commenced production in 2002.Cairn India is one of the largest independent oil and gas exploration andproduction companies in India. Cairn India and its JV partners accountfor more than 20 percent of India’s domestic crude oil production.

Highlights

For FY13, the company has recorded 48 percent YoY jump inrevenues to Rs 17524 crore and 56 percent YoY jump in net profit toRs 11,606 crore as its production went up 19 percent to 205,323barrels of oil equivalent per day (boepd).The company generated its highest ever revenues and net profitduring the FY 2012-13 as production grew from the Rajasthan blockand lower operating costs. The privately owned Oil and Gas Company incurred a forex loss of Rs2.8 crore as against Rs 236 crore forex gain YoY.Generated cash flows of Rs. 110,556 million (US$ 2,034 million);consequently the balance sheet remains strong with cash balance of

Rs. 167,131 million (US$ 3,073 million), and debt freeCairn India Board has recommended a final dividend of Rs. 6.5 pershare, resulting in a total dividend of Rs. 11.5 per share for the year,culminating in a total payout of 21.2% (including dividenddistribution tax) of profit after tax for the yearGoI provided policy clarity to allow exploration activity indevelopment blocks and this enabled us to move quickly to ensurewe unlock the full potential of the Rajasthan Block.

Sector: Energy

EPS (TTM): Rs. 63.11PE (TTM): 4.6

Industry PE: 11.79

Mkt. Cap (In crores): Rs. 57307.20 cr. 52 Wk high: Rs. 367

52 Wk low: Rs.267.7Latest Book Value: Rs. 249.70 P/BV: 1.2

Beta: 0.629

Face Value: 10.00

Institutional Holding: 25.69%

Stock holding pattern (%)

FY 2013 FY 2promoters 58.77 58

FII 25.69 29Indian Public/others 15.54 11Total 100

Source: Multiple sour ce

NSE Code: CAIRN BSE Code: 532792

Bloomberg Code: CAIR IN

Website : www.cairnindia.com

RISK PROFILE AGGRESSIVE

CMP Rs.286

HEDGE RECOMMENDATION BUY

VALUATIONValuation Weights Target

DCF 80% 3EV EBITDA 20% Weighted averagetarget price

100% 3

http://www.cairnindia.com/





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INVESTMENT RATIONALERajasthan block current production at ~175,000bopd; FY2013-14 exit production rate expected at

200,000-215,000 bopd and management is positiveabout it.Re-commenced exploration drilling in the Rajasthanblock; 26th discovery made in April 2013In Ravva, preparations are ongoing to drill a ‘highvalue, high risk’ deeper prospect; drilling planned in

H2 FY 2013-14.

In the SL-2007-01-001 block, two gas discoverieswere made out of the four exploration wells drilled;options to monetize the discovered gas resources areunder evaluationCommenced production from Aishwariya - the thirdlargest discovery in the block. This is the fifthproducing oil field from the block and will contributetowards achieving production growth from the blockCommenced commercial sale of gas from the block-this is the first step towards unlocking the natural gaspotential of the blockCairn India reached a complete technical alignmentwith their JV partner and is working towards full fieldimplementation in FY 2014-15. The DevelopmentPlans for the Barmer Hill formation, the NI field andNE field have also been submitted to the OperatingCommittee. Production from Barmer Hill is expectedto commence this fiscal year, subject to approvals.Cairn India plans to drill in excess of 450 wells in theRajasthan block over a three year period; includes100 Exploration and Appraisal (E&A) wells and thebalance as development wells to sustain andenhance production volumesThe management has lowered the discount rate toBrent crude between 8-13% from 10-15%.Cairn has provided guidance for declaring dividendevery year and dividend payout ratio will be 20%.Cairn India target to invest around USD 3 bn with in aperiod of 3 years to drill approximately 450 wells

RISKSCrude oil and natural gas reserves are estimates, andactual recoveries may vary significantly.

Delay/denial in approvals for further exploration,drilling plan and production ramp up. Crude oil price may decline due to fall in the demandfrom largest oil consuming countries and other factors.Appreciation in Foreign exchange. Cairn India might not be able to pay dividends . Revenue sharing with the government may increasefrom 20%-50%.

Source: Cairn Ind

Rajasthan Resource

Source: Cairn Ind

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SENSITIVITY ANALYSIS

Brent Crude oil from 2014 E (USD/bbl)377 85 90 95 100 105 110

E x c h a n g e R a t e

( I N

R / U S D

)51 337 343 348 353 358 36352 349 355 360 365 370 37653 361 367 372 377 383 38854 373 379 384 389 395 400

55 385 391 396 402 407 41356 397 402 408 414 419 425

Source: Hedge Rese arch

Brent Crude oil from 2014 E (USD/bbl)377 85 90 95 100 105 110

D i s c o u n t r a t e 8% 364 370 375 381 386 392

9% 363 369 374 380 385 39110% 362 368 373 378 384 389

11% 361 367 372 377 383 388

12% 360 365 371 376 381 38713% 359 364 370 375 380 385

Source: Hedge Rese arch

VALUATION

Our model weighing DCF with discount rate of 12.1%, andEV/EBITDA at 4.3x values Cairn India at Rs. 377 FY 2014Ewhich is highly correlated to Crude oil price and Forex.Being on conservative side we assumed long term Brentcrude oil price at USD 100/bbl and USD 95/bbl FY 2014and 2015 respectively and forex USD/INR at 53.

Cairn is confident to achieve production fromrajasthan field between 200kbopd-215kbopd at theend of 2014 and there are other fields yet to beexplored and developed. Hence we recommend buyposition for those who have aggressive risk appetitewith the target price of Rs. 377 FY 2014.

FINAL WEIGHTED AVERAGE TARGET PRICE

Consolidated DCF and EV/EBITDA target price Rs. 377BUYING LEVEL- 20% MOS Rs. 3

Source: Hedge Rese ar

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Sensex Cairn India

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Cairn India vs. Crude oil price

Cairn India Brent Crude Oil

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Consolidated Financial StatementsIncome Statement (in croresParticulars FY 2012 FY 2013 FY 2014 E FY 2015

Revenue 11860.65 17524.15 17250.15 17238.85Total expenditure 2606.23 4490.98 4226.29 4223.5other income 938.01 1036.24 862.51 861.9EBITDA 10192.43 14069.41 13886.37 13877.28D,D&A 1440.30 1845.92 2324.72 2672.7EBIT 8752.13 12223.49 11561.65 11204.54Interest 225.81 68.66 0.00 0.0PBT 8423.48 12154.83 11561.65 11204.54Tax 485.73 235.08 578.08 560.2

PAT 7937.75 11919.75 10983.57 10644.31

EPS 41.62 63.11 57.50 55.7Source: Hedge Rese arch

Source: Hedge Rese arc

Balance sheet (In crore

Particulars FY 2102 FY 2013 E FY 2014 E FY 2015Share capital 1907.40 1910.24 1910.24 1910.2Total reserves 46373.70 45789.19 54576.05 63091.49Shareholder's funds 48292.07 47699.43 56486.29 65001.73Long term provisions 1873.99 2404.06 2452.14 2501.1Total liabilities 50166.06 50103.49 58938.43 67502.92Net block 8927.83 9001.98 11275.72 11799.97Capital work in progress 4500.15 3892.20 5656.25 7140.0Goodwill 25341.46 16080.81 16080.81 16080.8Investments 5064.32 15694.64 15694.64 15694.6Current Assets:Inventories 136.07 196.09 203.63 214.2Sundry Debtors 1496.84 2285.19 2415.02 2413.4Cash and Bank 7013.51 5556.82 11199.75 17982.89Other Current Assets 150.56 272.25 258.75 258.5Loans and Advances 812.45 1021.23 862.51 861.9Total Current Assets 9609.43 9331.58 14939.66 21731.06Current Liabilities:Current Liabilities 2482.78 1739.88 2958.40 2956.4Provisions 120.61 1693.76 845.26 844.7Total Current Liabili ties 2603.39 3433.64 3803.66 3801.1Net Current Assets 7006.05 5897.94 11136.00 17929.89Deferred Tax Assets / Liabili ties -673.75 -464.08 -905.00 -1142.4Total Assets 50166.06 50103.49 58938.43 67502.92

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Source: Hedge Rese arc

Cash flow (in cror

Particulars FY 2012 FY 2013E FY 2104E FY 2015EProfit Before Tax 8423.48 12154.83 11561.65 11204.54

Depreciation 1470.95 1882.84 2375.63 2737.00Interest expense 225.81 68.66 0.00 0.00Interest income/Other Income -938.01 -1036.24 -862.51 -861.94Tax Paid -485.73 -235.08 -578.08 -560.23Changes In working Capital 583.71 -558.26 845.79 226.65Trade & Other receivables -13.98 -788.35 -129.83 1.58

Inventories -45.58 -60.02 -7.54 -10.58Loans & Advances -408.47 -208.78 158.72 0.56Trade & Other payables 1168.41 -742.90 1218.52 -1.94(Inc)/Dec in Other current Assets -53.86 -121.69 13.50 0.17(Inc)/Dec in Net Deferred Tax 112.56 -209.67 440.92 237.40Inc/(Decrease) in Provisions -175.38 1573.15 -848.50 -0.55Cash Flow after changes in working capital 9280.20 12276.75 13342.48 12746.02Cash From Operating Activities 9280.20 12276.75 13342.48 12746.02Cash Flow from Inves. Activities -3591.63 -1682.47 -5550.91 -3883.06Purchase of Fixed Assets -1645.69 7303.66 -4649.37 -3261.25Dec/(inc) in Capital WIP -518.27 607.95 -1764.05 -1483.75Investment -2365.68 -10630.32 0.00 0.00Other income/Interest received 938.01 1036.24 862.51 861.94Cash from Financing Activities -2170.57 530.07 -2148.63 -2079.82Inc/(Dec) in Loan Funds -2170.57 530.07 48.08 49.04Equity Dividend Paid 0.00 0.00 -2196.71 -2128.86Net Cash Inflow / Outflow 3518.01 11124.36 5642.93 6783.14Opening Cash & Cash Equivalents 1146.79 7013.51 5556.82 11199.75Closing Cash & Cash Equivalent 7013.51 5556.82 11199.75 17982.89

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Source: Ace Equity, Hedge Research

Cairn India Ltd. Financial Ratios –Consolidated (in crore

DESCRIPTION FY 2011 FY 2012 FY 2013 FY 2014E FY 2Operational & Financial Ratios

Earnings Per Share (Rs) 33.31 41.62 63.11 57.50 55.72DPS(Rs) 0.00 0.00 11.50 11.50 11.Book Value (Rs) 211.56 253.13 249.70 295.70 340.28Dividend Pay Out Ratio(%) 0.00 0.00 0.00 20.00 20.00Margin RatiosPBIDTM (%) 81.57 85.93 80.29 80.50 80.EBITM (%) 69.96 72.92 69.75 67.02 65.PBTM (%) 67.04 71.02 69.36 67.02 65.PATM (%) 61.63 66.93 68.02 63.67 61.7Performance Ratios

ROA (%) 15.52 16.80 24.84 20.19 18.ROE (%) 17.15 17.93 25.28 19.44 16.Asset Turnover(x) 0.27 0.30 0.54 0.45 0.4Efficiency RatiosReceivable days 52.66 46.06 47.60 51.10 51.10Financial Stability RatiosTotal Debt/Equity(x) 0.07 0.03 0.05 0.04 0.04Current Ratio(x) 4.04 3.69 2.72 3.93 5.7Quick Ratio(x) 3.98 3.64 2.66 3.87 5.6

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Peer Comparison Standalone (In crores) Company Name Year End Sales EBITDA PAT EPS P/E

ONGC 201303(U) 61156.1 27491.6 17537.0 20.5 16.3

GAIL 201303(U) 35009.1 5336.6 3404.0 26.8 12.7Cairn India 201303(U) 6885.9 5219.6 13192.2 69.1 4.3

Oil India 201303(U) 7475.8 3695.4 2824.8 47.0 12.4Petronet LNG 201303(U) 23002 1504.4 904.1 12.1 11.9

Source: Hedge Research

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Peer comparision standalone

ONGC 201303(U)

GAIL 201303(U)

Cairn India 201303(U)

Oil India 201303(U)

Petronet LNG 201303(U)

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Researched and prepared by:

Mohammad SafiqueResearch Intern

In collaboration with

Shajan K S Fundamental Analyst

Email: [email protected] Ph: (0484) 3040400, 3040419

HEDGE RESEARCH & STRATEGIES GROUP

Head of Research: Krishnan Thampi KSr. Fundamental Analyst: Amar C handramohanFundamental Analyst: Shajan K SEconomic and Commodity Analyst: Vignesh SBKSr. Equity Technical Analyst: Anish CVAccess all our research reports online at www.HedgeEquities.com

DIRECT ALL RESEARCH QUERIES TO:

Hedge Research & Strategies GroupHedge Equities LtdHedge House,Palarivattom,Cochin-682025Kerala,India. Kerala, IndiaPhone: (0484) 3040400Email: [email protected]

DisclaimerTh e informati on contai ned in our report does not consti tute an offer to sell securi ties or the sol icita tion of an offer to buy, any securi ty. Th is report is prepared forpri vate cir culation on ly. The inf ormation in ou r report is not intended as fin ancial advice. H edge Equiti es L td does not undertake the responsibil ity for anyin vestment decision tak en by the readers based on thi s report. M oreover, none of the in formation in the research report is intended as a prospectus within themeani ng of th e applicable laws of any j uri sdiction. T he info rmation a nd opinions contained i n ou r research reports have been compil ed or arr ived at fr omsources beli eved to be reliable in good fai th, but no r epresenta tion o r warr anty, express or im pl ied, i s made by Hedge Equit i es Ltd, to their accuracy. M oreover,you should be aware of t he fact that i nvestments in secur it ies or other f inancial in stru ments in volve ri sks. Past results do not guaran tee futu re perfor mance.

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