23 April 2015

4QFY15 Results Update | Sector: Oil & Gas

Cairn India

Harshad Borawake (HarshadBorawake@MotilalOswal.com); +91 22 3982 5432

BSE SENSEX S&P CNX CMP: INR214 TP: INR225 (+5%) Neutral 27,735 8,398

Bloomberg CAIR IN

Equity Shares (m) 1,874.6

M.Cap. (INR b) / (USD b) 401.2/6.3

52-Week Range (INR) 385 / 209

1, 6, 12 Rel. Per (%) -1/-28/-61

Avg Val (INR M)/Vol ‘000 792/2726

Free float (%) 40.1

Financials & Valuation (INR Billion)

Y/E MAR 2015 2016E 2017E

Sales 146.5 104.8 122.6 EBITDA 96.2 54.3 67.5 Adj. PAT 65.4 30.3 32.8 Adj. EPS (INR) 23.9 16.1 17.5 EPS Gr. (%) -63.3 -32.4 8.5 BV/Sh.(INR) 310.9 316.6 330.1 RoE (%) 11.3 5.1 5.4 RoCE (%) 12.2 6.0 7.5 Payout (%) 30.2 24.6 24.6 Valuations P/E (x) 6.1 13.3 12.2 P/BV (x) 0.7 0.7 0.6 EV/EBITDA (x) 2.8 4.7 3.2 Div. Yield (%) 4.2 1.6 1.7

Estimate change

TP change

Rating change

EBITDA below est.; reports PAT loss led by exploration write-offs/one-offs; Rajasthan production to remain flat at current oil prices Reports PAT loss; EBITDA below estimate: CAIR’s 4QFY15 revenue at INR26.8b

(est. INR28b, -47% YoY, -24% QoQ) was below estimate led by lower Rajasthan production at 174kboepd (est. 178kboepd) and marginally lower realization. However, CAIR reported an PAT loss of INR2.4b led by (1) exceptional Sri Lanka write-off of INR5b, (b) Ravva/KG write-off of INR3.7b, (c) forex loss of INR1.7b, partly compensated by lower D,D&A at INR2.7b (-60% YoY, -71% QoQ). Adj. PAT stood at INR1.9b (-94% YoY, -86% QoQ).

Rajasthan 4QFY15 production averaged 174kbpd, -3% QoQ: Despite Aishwariya ramp-up to 30bpd and Barmer/Satellite fields reaching 5kbpd, Rajasthan production declined to average 174kbpd (-9% YoY, -3% QoQ) led by natural decline in core fields. Compared to the earlier production growth guidance of 7-10% in three years, management now indicated that production growth is contingent on oil price and would remain flat until the oil price increases from current level.

Rajasthan realization at USD48.6/bbl implies 12% discount to Brent (v/s 10.1% in 3QFY15). IOR/EOR polymer injection in Mangala field is on track and expect production addition in 2HFY16.

Absolute dividend cut; projects contingent on crude price: Despite its intention/ability, CAIR was not able to maintain the absolute dividend and declared FY15 dividend of INR9/sh (v/s INR12.5/sh in FY14), implying an dividend yield of ~38%. Company plans FY16 capex at USD500m and any increase is contingent on an higher crude price.

Valuation and view With cash and cash equivalent at INR169b, we would watch future cash utilization. As the tax holiday gets exhausted in FY16, we increase FY17E tax rate assumption

to 30% (earlier at 20%), leading to 8% cut in earnings. The stock trades at 13.7x FY16E EPS of INR16.1. Our SOTP-based fair value stands

at INR225 (v/s INR239 earlier). Maintain Neutral.

Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

23 April 2015 2

Cairn India

Takeaways from the Earnings Concall FY15 net capex stood at USD1.1b of which 60% was towards development and

40% towards exploration. Planned Fy16 capex is USD500m of which 45% will be on core MBA fields, 40% on growth projects (Barmer Hill, Satellite Fields & Gas) and the rest 15% towards exploration.

Cairn focus is towards remaining operationally and financially ready to respond in case a V-shaped recovery happens in oil price. However, management for the time being has guided that the Rajasthan production will remain flat if the oil price remains at current level.

Aishwariya production had reached 30kbpd while Barmer Hill and Satellite fields production reached 5kbpd.

Cairn has written-off all the carrying value of its investment of INR5b in Sri Lanka as it believes that at the current gas prices and fiscal terms the block is commercially unviable.

Further in 4QFY15 it has also taken a write-off of INR2.6b towards HPHT (High pressure High Temperature) well RX-11 in Ravva and INR1.1b towards Nagayalanka-NW-1z well in KG Onshore.

Other key highlights Profit petroleum in 4QFY15 stood at INR4b (v/s INR12b in 4QFY14 and INR9.5b

in 3QFY15). The current government share in DA1 is 40% and DA2 is 30%. Rajasthan royalty share stood at INR4.6b (v/s INR11b in 4QFY14 and INR6.9b in

3QFY15). Other income stood at INR3.6b (v/s INR4b 4QFY14 and INR1.6b in 3QFY15). Foreign exchange loss stood at INR1.7b (v/s loss of INR2.4b in 4QFY14 and gain

of INR3.5b in 3QFY15). We estimate gross cumulative Rajasthan capex stands at USD5.2b. 4QFY15

capex share stood at of USD231m.

23 April 2015 3

Cairn India

Exhibit 1: Cairn India: Operating Performance FY12 FY13 FY14 FY15 4QFY15 (%)

4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q YoY QoQ Gross oil production (kbpd)

Ravva 25.0 23.5 21.6 21.5 20.8 21.9 22.6 21.9 18.8 19.5 20.5 23.4 26.9 42.6 14.8 Cambay 5.1 4.7 4.3 4.6 4.5 8.6 6.8 8.2 7.3 8.4 8.4 8.9 8.5 15.3 (5.3) Rajasthan 137.6 167.1 171.8 170.0 168.6 172.8 175.5 186.4 190.9 183.2 163.3 180.0 174.0 (8.8) (3.3) Sub-total 167.7 195.4 197.7 196.0 193.9 203.3 205.0 216.5 217.1 211.1 192.1 212.3 209.3 (3.6) (1.4) Gross gas production (mmscmd) Ravva 1.7 1.5 1.2 1.1 1.1 1.1 1.1 1.0 0.9 0.7 0.0 0.7 0.8 (10) 10 Cambay 0.5 0.4 0.4 0.4 0.3 0.4 0.3 0.3 0.3 0.4 0.4 0.4 0.2 (41.3) (46.3) Rajasthan 0.1 0.1 0.1 0.3 0.2 0.2 0.2 0.3 0.0 12.5 Sub-total 2.2 2.0 1.6 1.5 1.4 1.6 1.4 1.4 1.3 1.2 0.4 1.1 1.0 (18.7) (8.5) Gross total (kboepd) 180.3 207.0 207.2 205.0 202.0 211.8 213.3 224.5 224.4 217.9 194.5 218.9 215.3 (4.0) (1.6)

Net oil production (kbpd) Ravva (22.5%) 5.6 5.3 4.9 4.8 4.7 4.9 5.1 4.9 4.2 4.4 4.6 5.3 6.0 42.6 14.8 Cambay (40%) 2.0 1.9 1.7 1.8 1.8 3.4 2.7 3.3 2.9 3.4 3.4 3.6 3.4 15.3 (5.3) Rajasthan (70%) 96.3 117.0 120.3 119.0 118.0 121.0 122.8 130.5 133.6 128.2 114.3 126.0 121.8 (8.8) (3.3) Sub-total 104.0 124.2 126.8 125.7 124.5 129.3 130.7 138.7 140.8 136.0 122.2 134.8 131.2 (6.8) (2.7) Net gas production (mmscmd) Ravva (22.5%) 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.0 0.2 0.2 (10) 10 Cambay (40%) 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.1 0.1 (41.3) (46.3) Rajasthan (70%) 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.0 12.5 Sub-total 0.6 0.5 0.4 0.4 0.4 0.5 0.5 0.4 0.3 0.3 0.2 0.3 0.3 (22.6) (16.3) Net oil + gas production (kboepd)

Ravva (22.5%) 7.9 7.3 6.4 6.4 6.1 6.4 6.6 6.3 5.5 5.4 4.6 6.3 7.1 31.0 14.2 Cambay (40%) 3.1 2.9 2.7 2.7 2.5 4.3 3.5 4.1 3.7 4.3 4.3 4.4 3.8 3.1 (13.5) Rajasthan (70%) 96.3 117.0 120.3 119.0 118.0 121.5 123.8 131.5 134.8 129.3 114.3 126.0 121.8 (9.6) (3.3) Net Total (kboepd) 107.3 127.2 129.4 128.1 126.6 132.1 133.8 141.9 144.0 139.0 123.2 136.7 132.8 (7.8) (2.9) Key Operating Metrics Fx rate (INR/USD) 50.2 54.2 55.5 54.2 54.2 55.9 62.5 62.0 62.0 59.8 60.5 61.8 62.2 0.3 0.6

Brent (USD/bbl) 118.8 108.7 110.0 110.0 113.5 102.8 110.6 109.2 107.7 109.7 102.0 76.0 55.2 (48.7) (27.4)

Rajasthan realization (USD/bbl) 108.5 100.5 97.6 95.6 99.7 94.3 96.0 95.6 95.2 97.5 91.5 68.3 48.6 (48.9) (28.8) Disc. to Brent (%) (8.7) (7.6) (11.3) (13.1) (12.2) (8.3) (13.2) (12.5) (11.6) (11.1) (10.3) (10.8) (12.0) 3.4 11.1

Natural gas (USD/mmbtu) 4.3 4.4 4.5 4.5 5.0 4.8 5.7 5.7 5.9 5.4 7.1 6.1 6.0 1.6 (1.6) Average realization (USD/boe) 106.7 99.3 96.7 95.0 99.5 93.3 95.3 94.9 94.4 93.3 95.3 68.1 48.4 (48.7) (28.9) Average realisation (INR/boe) 5,352 5,382 5,365 5,147 5,388 5,215 5,956 5,884 5,853 5,577 5,766 4,209 3,010 (48.6) (28.5)

Source: MOSL, Company

23 April 2015 4

Cairn India

Exhibit 2: CAIRN quarterly P&L (INRb) FY12 FY13 FY14 FY15 4QFY15 (%) INR B 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q YoY QoQ Gross revenues 49.5 59.9 61.0 58.5 59.4 59.9 69.8 73.9 73.5 73.3 60.2 51.5 35.4 (51.9) (31.3) Less: Profit Petroleum 6.5 6.8 7.0 7.2 7.2 10.5 12.4 12.8 12.0 17.8 11.3 9.5 4.0 (66.9) (58.1) Less: Levies (Cess + Royalty) 10.5 15.6 16.8 15.6 15.5 15.9 18.3 18.9 17.8 18.0 15.6 14.2 11.5 (35.5) (19.2) Net Revenues 32.5 37.5 37.3 35.7 36.8 33.5 39.2 42.3 43.7 37.5 33.3 27.8 19.9 (54.4) (28.3) Less: Opex 2.7 2.5 2.7 2.8 4.2 3.4 3.9 5.3 5.2 4.5 5.4 5.9 6.5 24.7 9.8 EBITDA 29.8 34.9 34.5 32.9 32.6 30.1 35.3 36.9 38.4 33.1 27.9 21.8 13.4 (65.1) (38.6) Less: Exploration w/off 0.6 0.4 0.3 0.3 3.7 1.0 0.5 1.0 1.6 2.5 1.3 1.6 5.5 243.4 251.3

Less: D,D&A 4.0 4.4 4.5 4.8 4.7 5.2 5.5 5.9 6.4 7.2 7.0 8.9 2.6 (59.8) (71.3) EBIT 25.1 30.2 29.7 27.8 24.2 23.9 29.3 30.0 30.5 23.3 19.5 11.4 5.3 (82.5) (53.2) Less: Interest 0.3 0.3 0.2 0.1 0.2 0.1 0.1 0.1 0.1 0.0 0.1 0.1 0.1 (52.7) (39.1) Add: Other Income 0.9 1.0 2.2 1.8 2.2 1.3 1.1 1.4 4.1 4.2 3.5 1.6 3.6 (12.1) 119.5 PBT prior to FX fluctuations 25.8 30.9 31.8 29.5 26.2 25.1 30.3 31.3 34.4 27.5 22.9 12.9 8.8 (74.3) (31.5) Forex gain / (loss) (2.2) 8.7 (7.9) 2.4 (0.0) 6.8 4.3 (1.3) (2.4) 1.0 2.4 3.5 (1.7) (30.7) (147.6) Exceptionals (16.3) (5.1) PBT 23.6 39.5 23.9 31.9 26.2 31.9 34.6 30.0 32.0 12.2 25.3 16.4 2.1 (93.4) (87.2) Tax 1.7 1.3 0.7 0.3 0.6 0.6 0.8 1.2 1.6 1.3 2.6 2.9 4.5 175.2 53.4 Tax rate (%) 7.4 3.2 2.9 1.0 2.2 1.9 2.3 3.8 5.1 10.5 10.1 17.9 PAT 21.9 38.3 23.2 31.6 25.6 31.3 33.9 28.8 30.4 10.9 22.8 13.5 (2.4) (107.9) (117.8) Adj. PAT 21.9 38.3 23.2 31.6 25.6 31.3 33.9 28.8 30.4 27.2 22.8 13.5 1.9 (93.6) (85.7) Adj. EPS 11.7 20.4 12.4 16.8 13.7 16.7 18.1 15.4 16.2 5.8 12.2 7.2 (1.3) (107.9) (117.8)

Source: Company, MOSL

Exhibit 3: CAIRN quarterly P&L (USD/bbl) FY12 FY13 FY14 FY15 4QFY15 (%) USD/bbl 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q YoY QoQ Gross revenues 101.0 95.5 92.3 91.7 96.2 89.1 90.8 91.3 91.5 97.0 87.8 66.2 47.6 (48.0) (28.1) Less: Profit Petroleum 13.2 10.9 10.6 11.3 11.6 15.7 16.1 15.8 14.9 23.5 16.5 12.2 5.4 (64.2) (56.2) Less: Levies (Cess + Royalty) 21.4 24.9 25.4 24.4 25.1 23.6 23.8 23.3 22.2 23.8 22.8 18.3 15.5 (30.3) (15.5) Net Revenues 66.4 59.7 56.4 55.9 59.6 49.8 51.0 52.2 54.3 49.7 48.5 35.7 26.8 (50.7) (25.1) Less: Opex 5.6 4.0 4.2 4.4 6.8 5.1 5.0 6.6 6.5 5.9 7.8 7.6 8.8 34.8 14.8 EBITDA 60.9 55.7 52.2 51.5 52.8 44.8 45.9 45.6 47.8 43.8 40.7 28.1 18.0 (62.3) (35.9) Less: Exploration w/off 1.3 0.6 0.4 0.4 5.9 1.5 0.7 1.2 2.0 3.4 2.0 2.0 7.4 271.2 267.3

Less: D,D&A 8.2 7.0 6.8 7.6 7.7 7.7 7.1 7.4 7.9 9.5 10.3 11.5 3.4 (56.5) (70.0) EBIT 51.4 48.1 45.0 43.5 39.2 35.6 38.2 37.0 37.9 30.9 28.5 14.6 7.2 (81.1) (51.1) Less: Interest 0.6 0.5 0.3 0.1 0.2 0.2 0.1 0.1 0.1 0.0 0.1 0.1 0.1 (48.9) (36.3) Add: Other Income 1.9 1.5 3.4 2.9 3.6 1.9 1.4 1.7 5.1 5.5 5.0 2.1 4.8 (5.0) 129.5 PBT prior to FX fluctuations 52.6 49.2 48.1 46.3 42.5 37.3 39.4 38.7 42.9 36.4 33.5 16.6 11.9 (72.2) (28.4) Forex gain / (loss) (4.4) 13.8 (11.9) 3.7 (0.0) 10.1 5.6 (1.6) (3.0) 1.3 3.5 4.5 (2.3) (25.2) (149.8) Exceptionals - - - - - - - - - (21.5) 0.0 0.0 (6.8) PBT 48.2 63.0 36.2 50.0 42.5 47.4 45.0 37.1 39.8 16.2 37.0 21.2 2.8 (92.9) (86.6) Tax 3.5 2.0 1.1 0.5 0.9 0.9 1.0 1.4 2.0 1.7 3.7 3.8 6.1 197.5 60.4 Tax rate (%) 15.0 5.1 4.4 1.6 3.6 2.8 3.0 4.7 6.4 13.9 14.7 23.0 0.0 (100.0) (100.0) PAT 44.6 61.0 35.1 49.5 41.5 46.5 44.0 35.6 37.8 14.5 33.2 17.4 (3.2) (108.6) (118.7) Adj. PAT 44.6 61.0 35.1 49.5 41.5 46.5 44.0 35.6 37.8 36.0 33.2 17.4 2.6 (93.1) (85.0)

Source: Company, MOSL

23 April 2015 5

Cairn India

Exhibit 4: Rajasthan Gross Production averaged 174kbpd, down 10% QoQ

Source: Company, MOSL

Exhibit 5: CAIRN Net O+G Production down QoQ led by Rajasthan (kboepd)

Source: Company, MOSL

Exhibit 6: Increasing production contribution from satellite fields

Source: Company, MOSL

- 6.0

15.

4

17.

5

44.

7

116

.1

124

.9

118

.0

125

.1

125

.3

125

.1

137

.6

167

.1

171

.8

170

.0

168

.6

172

.8

175

.5

186

.4

190

.9

183

.2

163

.3

180

.0

174

.0

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

0 4 11 12 31

81 87 83 88 88 88 96 117 120 119 118 122 124 131 135 129

114 126 122

16 19 25 26 45

94 100 94 100 99 99 107

127 129 128 127 132 134 142 144 139

123 137 133

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

Ravva (22.5%) Cambay (40%) Rajasthan (70%) Net Total (kboepd)

23 April 2015 6

Cairn India

Rajasthan discount to Brent at ~12% Rajasthan realization stood at ~USD48.6/bbl (-49% YoY, -29% QoQ), implying

discount to Brent at ~12%. Full year Fy15 discount stood at 10.6%. Cairn continues to guide Rajasthan realization discount to Brent between 8-13%.

Exhibit 7: Rajasthan discount to Brent at 12% in 4QFY15 v/s 10.8% in 3QFY15

Source: Company, MOSL

Exhibit 8: Ongoing exploration campaign tested ~50% (1.4bboe) planned resources

Source: Company, MOSL

4%

6%

8%

10%

12%

14%

16%

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

23 April 2015 7

Cairn India

Exhibit 9: Update on Cairn’s Key Exploration blocks

No. Exploration Blocks 3QFY15 update 4QFY15 update 1 KG-ONN-2003/1

block (Carin: 49%)

- In November 2014, MC approved extension of appraisal thus regularising the extended well testing of Nagayalanka-1zST and drilling of Nagayalanaka-NW-1z.

- DGH approved the extension of FDP submission deadline to April 24, 2015.

- Nagyalanka NW-1z well was classified as water wet.

KG-OSN-2009/3 block (Carin: 100%)

- 934 sqkm 3D data acquired, interpretation focused upon building a high quality prospect inventory.

- Upon completion of interpretation, planning for a four well drilling campaign will begin.

- Site survey data acquisition, required to complete drilling planning, is expected in mid-2015.

- High quality Broadband PSTM processed data received in 4QFY15.

- Site surveys expected to commence in April 2015. - Planning for exploration drilling underway likely to drill

in 1HFY16

3 MB-DWN-2009/1 block (Carin: 100%)

- Processing of 2,128 line km of 2D broadband seismic on track and expected to be delivered in Q4 FY15.

- Regional work is ongoing and options for acquisition of 3D seismic data are pending the outcomes of the 2D interpretation.

- Processing of 2,128 km of 2D data completed in 4QFY15.

- Options for acquisition of 3D data pending the outcomes of 2D interpretation.

4 PR-OSN-2004/1 block (Carin: 35%)

- Revised date of the expiry of Phase-1 is expected to be 30th June 2017.

- Planning for three well drilling program is underway and reprocessing of vintage 503sqkm Palar 3D seismic is planned for Q4 FY15.

- 30 month special dispensation period was approved in Jan-15 and revised date of Phase-1 expiry is now June 30, 2017.

- Planning for the three well drilling program is ongoing.

5 Srilanka Block SL 2007-01-001 (Carin: 100%)

- Commercialization of gas discoveries continues to present challenges.

- Refining technical evaluation of remaining prospects that could ultimately add to discovered resource base.

- Cairn plans to commence 3D seismic reprocessing in the current quarter.

- Cairn has written-off all the carrying value of its investment of INR5b in Sri Lanka as it believes that at the current gas prices and fiscal terms the block is commercially unviable.

6 South Africa Block 1 (Carin: 60%)

- Exploration prospects identified based on 2013 3D seismic survey, which covers oil prone outboard portion of Block 1.

- In current quarter, Cairn plans to progress well-planning and necessary environmental clearances to enable exploratory drilling in 2016.

- 3D data identified a robust inventory of exploration prospects.

- Discussions are ongoing with JV partner on the stability of contractual terms.

Source: Company, MOSL

23 April 2015 8

Cairn India

Valuation and view Cairn India production growth potential and reserve upgrades now seems to be

contingent on the higher oil price from current levels (~USD60/bbl). We await clarity on any change in the reserve number.

Other events to watch out are (1) Rajasthan production trend, (2) Updates on reserves and (3) Update on other exploration blocks and (4) clarity on Rajasthan PSC extension.

With cash and cash equivalent at INR169b, to watch out for future cash utilization.

As the tax holiday gets exhausted in FY16, we are increasing our FY17 tax rate assumption to 30% (earlier at 20%) leading to 8% cut in earnings.

The stock trades at 13.7x FY16E EPS of INR16.1. Our SOTP based fair value stands at INR225 (v/s INR239 earlier). Maintain Neutral.

Exhibit 10: Cairn India: Key Assumptions Y End: March 31 FY11 FY12 FY13 FY14 FY15E FY16E FY17E Exchange Rate (USD/INR) 45.6 47.9 54.5 60.6 61.1 63.0 64.0 Brent Crude Price (USD/bbl) 86.7 114.5 110.5 107.6 85.7 60.0 70.0 Disc. for Rajasthan Crude (USD/bbl) 12.0% 9.4% 11.0% 11.4% 10.6% 10.6% 10.6% Rajasthan net realization (USD/bbl) 76.3 103.7 98.3 95.3 76.6 53.6 62.6 Rajasthan gross production (kbpd) 99 128 170 181 175 175 180 Rajasthan Cess (INR/MT) 2,625 2,625 4,635 4,635 4,635 4,635 4,635 Govt. sharing (%) 0% 10% 20% 30% 40% 50% 50%

Source: Company, MOSL

Exhibit 11: Cairn India SOTP: We value Cairn at INR225/sh

Source: MOSL

23 April 2015 9

Cairn India

Story in Charts

Exhibit 12: Well diversified portfolio with assets ranging from exportation to production as well as 2 overseas assets

Source: Company, MOSL

Exhibit 13: Cairn’s pipeline gives access to majority of domestic refineries as well as export option

Source: Company, MOSL

Exhibit 14: Cairn has continually upgraded in-place resource base

Source: Company, MOSL

Exhibit 15: …as well as estimated ultimate recovery (mmboe)

Source: Company, MOSL

23 April 2015 10

Cairn India

Exhibit 16: …however Mangala decline, slower Bhagyam ramp-up, halted Rajasthan production ramp-up in FY15

Source: Company, MOSL

Exhibit 17: Management vision to produce 300kbpd at Rajasthan

Source: Company, MOSL

Exhibit 18: Cairn’s Rajasthan block has reported 31 discoveries till date

Source: Company, MOSL

Exhibit 19: Correlation between Cairn stock price and Brent Crude Price

Source: Company, MOSL

Exhibit 20: We value Cairn on SOTP basis at INR225/sh

Source: Company, MOSL

Exhibit 21: 1 Yr Fwd Cairn India P/B Chart

Source: Company, MOSL

99

128

170181 175 175 180

FY11 FY12 FY13 FY14 FY15E FY16E FY17E

99128

170 181 175 175 180

300

FY11 FY12 FY13 FY14 FY15E FY16E FY17E Vision

10

12

4 4

6

4

21

0 0 0 0

5

7

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Gud

a Raag

eshw

ari

Man

gala

Bhag

yam

0

50

100

150

200

0

100

200

300

400

Apr-07 Apr-09 Apr-11 Apr-13 Apr-15

Cairn India stock Price (INR/sh) Brent (USD/bbl) - RHS

0.7

1.6

1.2

1.2

0.70.6

0.9

1.2

1.5

1.8

Mar

-08

Nov

-08

Jul-

09

Feb-

10

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-10

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11

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-13

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-13

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-14

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-15

PB (x) Peak(x) Avg(x)Median(x) Min(x)

23 April 2015 11

Cairn India

Financials and valuations

Income Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E

Net Sales 16,230 102,779 131,130 175,241 187,617 146,462 104,792 122,569

Change (%) 13.3 533.3 27.6 33.6 7.1 -21.9 -28.5 17.0

Change in Stock -366 -264 -263 -274 -141 -11 0 0

Employee Costs 1,102 1,105 861 1,033 2,741 1,105 1,270 1,461

Operating Costs 5,689 16,709 22,475 39,603 44,233 49,162 49,189 53,597

EBITDA 9,805 85,228 108,056 134,880 140,784 96,207 54,333 67,511

% of Net Sales 60.4 82.9 82.4 77.0 75.0 65.7 51.8 55.1

D,D&A (incl. w/off) -3,570 -13,596 -17,391 -23,008 -27,098 -36,675 -35,369 -39,595

Interest -295 -2,909 -2,220 -687 -415 -204 0 0

Other Income 3,505 1,288 3,194 7,228 7,834 12,849 17,334 18,933

EBIT 9,446 70,011 91,639 118,414 121,106 72,177 36,298 46,849

Forex Fluctuations 718 -1,112 6,148 3,134 7,390 5,244 0 0

Exceptional Item 0 0 -13,552 1,888 0 -21,326 0 0

PBT 10,164 68,899 84,235 123,436 128,496 56,095 36,298 46,849

Tax -348 5,556 4,857 2,351 4,178 11,299 6,029 14,006

Rate (%) -3.7 7.9 5.3 2.0 3.4 15.7 16.6 29.9

PAT 10,511 63,343 79,378 121,085 124,318 44,796 30,269 32,843

Adjusted PAT 10,511 63,343 92,929 119,198 124,318 65,409 30,269 32,843

Change (%) 30.1 502.6 46.7 28.3 4.3 -47.4 -53.7 8.5

Balance Sheet (INR Million)

Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E

Share Capital 18,970 19,019 19,074 19,102 19,076 18,746 18,746 18,746

Reserves & Surplus 319,714 383,913 463,847 457,892 555,301 564,150 574,680 600,086

Net Worth 338,683 402,932 482,921 476,994 574,377 582,896 593,426 618,833

Total Loans 34,007 26,782 0 0 0 0 0 0

Deferred Tax 4,619 5,750 6,841 4,641 7,356 17,722 17,541 17,307

Capital Employed 377,310 435,465 489,762 481,635 581,733 600,618 610,967 636,139

Net Fixed Assets 1,270 59,236 59,294 60,645 60,193 56,349 51,897 46,836

Prod. Proper.(net of depletion) 4,995 20,850 30,207 33,366 38,644 37,803 32,235 26,082

Capital WIP 91,635 39,819 45,002 43,850 56,969 86,460 92,094 93,195

Goodwill 253,193 253,193 253,193 151,889 151,922 151,922 151,922 151,922

Investments 17,124 10,945 18,356 103,823 163,638 143,105 143,105 143,105

Curr. Assets, L & Adv.

Inventory 2,909 3,277 8,268 6,420 2,971 3,439 5,742 6,716

Debtors 3,067 14,829 14,968 22,852 25,124 11,250 14,355 16,790

Cash & Bank Balance 9,294 44,847 70,135 55,568 17,619 8,398 18,300 59,260

Loans & Adv. and Other CA 8,462 16,655 35,010 61,600 139,829 182,815 186,082 186,082

Current Liab. & Prov.

Liabilities 9,869 12,638 24,828 17,399 27,166 40,180 38,759 45,334

Provisions 4,937 16,628 19,946 40,978 48,009 40,743 46,006 48,515

Net Current Assets 8,928 50,342 83,608 88,063 110,367 124,979 139,714 174,999

Application of Funds 377,310 435,465 489,762 481,635 581,733 600,618 610,967 636,139

E: MOSL Estimates

23 April 2015 12

Cairn India

Financials and valuations

Ratios

Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E

Basic (INR)

EPS 5.5 33.3 41.6 63.1 65.2 23.9 16.1 17.5

Adjusted EPS 5.5 33.3 48.7 63.1 65.2 34.9 16.1 17.5

Cash EPS 6.3 39.6 49.2 72.8 77.2 37.6 32.7 34.7

Book Value 178.1 211.9 253.2 249.7 301.1 310.9 316.6 330.1

Adj. Book Value 44.9 78.7 120.4 170.2 221.5 229.9 235.5 249.1

DPS 0.0 0.0 0.0 11.5 12.5 9.0 3.4 3.7

Payout (incl. Div. Tax.) 0.0 0.0 0.0 21.2 22.1 30.2 24.6 24.6

Valuation (x)

P/E 5.1 3.4 3.3 6.1 13.3 12.2

Cash P/E 4.4 2.9 2.8 5.7 6.5 6.2

EV / EBITDA 3.0 1.9 1.7 2.8 4.7 3.2

EV / BOE (in USD, 1P basis) 10.3 7.1 5.9 6.6 6.2 5.1

Price / Book Value 0.8 0.9 0.7 0.7 0.7 0.6

Dividend Yield (%) 0.0 5.4 5.8 4.2 1.6 1.7

Profitability Ratios (%)

RoE 3.2 17.1 21.0 24.8 23.6 11.3 5.1 5.4

RoCE 2.6 17.9 20.3 24.5 22.9 12.2 6.0 7.5

Turnover Ratios

Debtors (No. of Days) 52 32 41.5 39.4 46.7 50.0 50.0 50.0

Fixed Asset Turnover (x) 7.3 1.5 1.8 2.1 2.1 1.5 1.0 1.1

Leverage Ratio

Net Debt / Equity (x) 0.0 -0.1 -0.2 -0.3 -0.3 -0.2 -0.2 -0.3

Cash Flow Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E

Profit /(Loss) before Tax 10,164 68,900 84,235 121,548 128,496 56,095 36,298 46,849

Depreciation 1,780 12,226 14,709 18,873 23,545 25,695 31,032 32,224

Other op activities -2,012 4,935 -6,915 -1,448 -773 8,964 1,720 3,417

Direct Taxes Paid -1,753 -12,592 -21,291 -22,687 -26,227 -933 -6,210 -14,240

(Inc)/Dec in Wkg. Capital -7,082 -10,088 -29 -5,730 -14,113 -23,833 -4,833 5,674

CF from Op. Activity 1,097 63,381 70,710 110,556 110,928 65,989 58,006 73,925

(Inc)/Dec in FA & CWIP -33,662 -25,648 -29,558 -16,313 -28,733 -61,482 -30,982 -29,482

(Pur)/Sale of Investments 25,194 -24,438 -196 -117,506 -55,700 20,533 0 0

Interest & dvd received 2,360 903 2,449 3,238 3,142 2,016 2,617 3,954

CF from Inv. Activity -6,108 -49,183 -27,306 -130,581 -81,291 -38,933 -28,365 -25,529

Change in Equity 20 670 566 589 -945 -11,055 0 0

Inc / (Dec) in Debt -8,713 -7,348 -14,419 -12,500 0 0 0 0

Other fin, activities -1,760 -2,052 -1,363 -968 -358 0 0 0

Dividends Paid 0 0 0 -11,098 -27,939 -25,222 -19,739 -7,437

CF from Fin. Activity -10,453 -8,730 -15,216 -23,977 -29,242 -36,277 -19,739 -7,437

Inc / ( Dec) in Cash -15,464 5,468 28,188 -44,002 395 -9,221 9,902 40,959

Add: Opening Balance 21,733 6,223 11,467 44,463 463 17,619 8,398 18,300

Closing Balance b/f deposit 6,269 11,691 39,656 462 858 8,398 18,300 59,260

Bank deposit 3,025 33,156 30,480 55,106 16,762

Closing Balance 9,294 44,847 70,135 55,568 17,619 8,398 18,300 59,260

E: MOSL Estimates

23 April 2015 13

Cairn India

Corporate profile

Exhibit 23: Shareholding pattern (%) Mar-15 Dec-14 Mar-14

Promoter 59.9 59.9 58.9

DII 10.4 10.7 9.9

FII 14.3 15.3 17.8

Others 15.5 14.1 13.5

Note: FII Includes depository receipts

Exhibit 24: Top holders Holder Name % Holding

Cairn UK Holdings Ltd 9.8

LIC of India 9.1

Exhibit 25: Top management Name Designation

Navin Agarwal Chairman

Mayank Ashar Managing Director & CEO

Sudhir Mathur CFO

Mike Yeager Chairman, Operations Review Board

Darran Lucas Director, Exploration

Exhibit 26: Board of director Name Name

Navin Agarwal Naresh Chandra*

Mayank Ashar Tarun Jain

Aman Mehta* Priya Agarwal

Omkar Goswami* Neerja Sharma

Edward T Story*

*Independent

Exhibit 27: Auditors

Name Type

S R Batliboi & Co LLP Statutory

Nessr & Associates Secretarial Audit

Shome & Banerjee Cost Auditor

Exhibit 28: MOSL forecast v/s consensus

EPS (INR) MOSL forecast Consensus

forecast Variation (%)

FY16 16.1 24.0 -33.0

FY17 17.5 27.6 -36.7

Company description Cairn India, an E&P company, listed in January 2007 through an IPO after it spun off from its parent Cairn Energy Plc. Cairn Energy sold its majority stake to Vedanta group making it a parent with ~60% stake. Cairn has working interest in 9 E&P blocks. Ravva and Cambay blocks produce about 34kboepd (Cairn WI 9.2kbpd). The Rajasthan block, which accounts for ~80% of Cairn’s reserves, produced at ~191kbpd (Cairn WI ~ 134kbpd) in 4QFY14.

Exhibit 22: Sensex rebased

23 April 2015 14

Cairn India

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