>CAIRN INDIA LIMITED (INDIABULLS)

For Q2’10, Cairn India Limited’s (CIL’s) net revenues declined 28.3% yoy to Rs. 2,297.8 mn. This decline was largely due to a 31.7% yoy fall in average price realisations to USD 59.6 per boe. However, the Company’s adjusted net profit was up 4.3% yoy to Rs. 3,058 mn. We are excluding the reversal of the exceptional provision of Rs.1,637.1 mn for a past-profit petroleum payment pertaining to Ravva that was due to the Government of India. Accordingly we have excluded the same from Q1’10 results as well. We have valued the Company using NPV of CIL’s assets suggesting a target price of Rs. 256 implying a discount of 8.9% on the current market price of Rs. 281. Thus, we are changing our rating from Hold to Sell.

TP retained; rating downgraded

No significant change in assets: Our target price has largely remained unchanged from the previous quarter and we believe that the current rally in the stock price is not justified as Cairn has not discovered any new fields and is focused on developing its current assets. We have assumed a peak production of 175,000 bopd from Rajasthan after accounting for other smaller fields that will become operational at a later stage. Also, the Ravva and CB fields are maturing and decrease in production from these fields is a cause for concern.

Mangala field commenses production: Cairn India Ltd. has started commercial production from its Mangala (RJ ON-90/1) field. Mangala production continues to build as per plan with average gross production of 5,991 bopd in Q2; currently producing 10,000 bopd. The field is expected to produce 30,000 bopd in Q3’10, and is likely to reach a peak production of 1,25,000 bopd by June 2010. The Centre has allowed private refiners to qualify as additional buyers of Rajasthan crude, which is a positive for Cairn, with Essar and RIL already lining up as prospective buyers.

To read the full report: CAIRN INDIA