>CAIRN INDIA (EDELWEISS)

■ Exceptional items lift PAT to INR 4.7 bn (up 60.1% Y-o-Y) in Q2FY10
Cairn India’s (CIL) top line, at INR 2,298 mn, was down 28.2% Y-o-Y (on lower crude prices and production) and up 12.1% Q-o-Q (on higher crude prices) in Q2FY10. The company’s net hydrocarbon production (includes Rajasthan production, revenues on which were not booked), at 18,638 boepd, increased 8.9% Y-o-Y and 17.1% Q-o-Q. Crude realisation of USD 69.1/bbl was up 14.8% Q-o-Q, down 40.6% Y-o-Y, and gas realisation was lower at USD 3.9/mmscf. Higher total expenses (production and employee) resulted in an EBITDA of INR 1,333 mn (down 41.5% Y-o-Y and up 0.9% Q-o-Q). However, CIL’s results benefited from several exceptional items like foreign exchange fluctuation gain of INR 661.8 mn (included in other income), reversal of deferred tax liability of INR 2647.9 mn (considering field like as stipulated in PSC against useful economic life), and gain of INR 1637.1 mn on reversal of provision in the ONGC carry case (group has won its appeal in Malaysian Court). Hence, CIL’s PAT, at INR 4695 mn, increased 60.1% Y-o-Y and was almost 10x Q-o-Q.

Exceptional items/gains boost profit

■ Mangala production starts; Train 2 targeted by early CY10
Crude production at the Mangala field commenced on August 20, 2009. Train 1 was commissioned and production has begun. First cargo of crude was delivered to MRPL on October 9, 2009. Train 2 (50 kbpd capacity) completion will be delayed from end CY09 to early CY10 and train 3 (50 kbpd capacity) by H1CY10. With this, Mangala plateau production of 125,000 bpd is targeted by H1CY10. GoI has agreed for CIL to be able to sell to private refiners. Further, management also indicated little impediment to exports. Aishwarya FDP has yet to be approved. CIL estimates the implied price realisation is ~10-15% discount to brent (based on six month ending Sept 2009 average prices).

■ Outlook and valuations: Rich; maintain ‘HOLD’
We have revised our PAT estimates down 10.3% for FY10 (lowered our production outlook) and up 26.1% for FY11 (higher crude prices). CIL has commenced production from the Rajasthan block in August 2009, in line with its guidance during the 2006 IPO. In addition to the ramp-up of Rajasthan production, the company has 25 discoveries, development of which could positively impact production. We have now moved to a March 2011 SOTP, in addition to increasing our long-term average crude price from USD 72/bbl to USD 80/bbl. We estimate an SOTP of INR 290.1/share, offering 9.4% upsides from current levels. At INR 265, CIL is trading at 10.7x FY11E EPS. We maintain our ‘HOLD’ recommendation on the stock. On relative return basis,
the stock is rated ‘Sector Outperformer’.

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