Cairn India. Result Update Q2 FY16

Transcription

1 Change in Estimates Rating Target Q2 FY16 Cairn India Net sales at Rs. 2,242crs declined 43.7% yoy and were tad lower than our expectations due to lower than expected production. Net working interest production for Q2 FY16 was at 128,021boepd, an increase of 3.9% yoy but a modest decline of 1.9% qoq OPM falls 26.4ppts yoy and 860bps qoq to 43.7% owing to sharp fall in crude oil realizations Company reported a PAT of Rs. 673crs a fall of 70.5% yoy owing to sharp fall in operating profit offset by lower exploration write offs, 58.5% yoy jump in foreign exchange gain and tax write back of Rs131crs Maintains guidance of a flat production for FY16 and FY17 under current crude pricing and capex commitments Cut estimates to factor in lower crude oil prices but maintain our Accumulate rating on the stock Result table (Rs cr) Q2 FY16 Q2 FY15 % yoy Q1 FY16 % qoq Net sales 2,242 3,982 (43.7) 2,627 (14.7) Inc/(dec) in stock (19.2) Personnel costs (31) (7) (32) (4.2) Operating expense (517) (452) 14.5 (487) 6.2 Cess (678) (656) 3.4 (691) (1.9) Other expense (59) (104) (43.4) (53) 11.3 Operating profit 979 2,790 (64.9) 1,373 (28.7) OPM (%) bps bps Depreciation (864) (703) 23.0 (877) (1.4) Exploration w/off (68) (134) (49.1) (82) (17.3) Interest (6) (5) 12.7 (2) Other income (65.2) 382 (68.4) Forex fluctuation PBT 542 2,534 (78.6) 976 (44.5) Tax 131 (256) (151.2) (141) (193.1) Effective tax rate (%) (24.2) Adjusted PAT 673 2,278 (70.5) 835 (19.4) Adj. PAT margin (%) bps bps Ann. EPS (Rs) (70.5) 17.8 (19.4) Source: Company, India Infoline Research Production at Rajasthan field declines sequentially Cairn India saw a decline in production at its Rajasthan field by 2.4% qoq but an improvement of 3% on yoy basis. Gross production was at 168,126boepd vs 172,224boepd in Q1 FY16 owing to additional volumes from infill wells at the Aishwariya field. Production at DA1 which includes Mangala, Aishwariya, Raageshwari and Saraswati fields was at 147,443boepd lower by 1% qoq but a jump of 10% yoy. Ramp up at Aishwariya field was more than offset by decline at the Mangala field. DA2 which primarily includes Bhagyam field saw 28% yoy and 8% sequential fall to 20,683boepd. Rating: Sector: Sector view: Oil & Gas Neutral Sensex: 27, Week h/l (Rs): 292 / 121 Market cap (Rscr) : 28,920 6m Avg vol ( 000Nos): 2,514 Bloomberg code: CAIR IS BSE code: NSE code: CAIRN FV (Rs): 10 Price as on October 21, 2015 Share price trend CAIRN Accumulate Target: Rs170 CMP: Rs154 Upside: 10.4% 40 Oct 14 Feb 15 Jun 15 Share holding pattern Sensex (%) Mar 15 Jun 15 Sep 15 Promoters Institutions Others Research Analyst: Prayesh Jain research@indiainfoline.com October 23, 2015 This report is published by IIFL India Private Clients research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets. Result Update

2 Cairn India (Q2 FY16) Update on EOR project Mangala EOR: Injection has been increased from 80,000 barrels of polymer solution per day in Q1 FY16 to 200,000 polymer solution per day in Q2 FY16. The injection ramp up plan is on track. Current polymer injection rates and production performance have reduced the risks significantly both from surface facilities and reservoir perspective. The company expects to ramp up the polymer injection volumes to 400,000 blpd by end of FY16. More than 75% of the new wells are already drilled, and the work on drilling and surface facilities is ongoing as per schedule. Modifications to the existing facilities for handling polymerized fluids are nearing completion. Some of the pre producer wells have also been converted into polymer injection wells as per the plan, which will eventually lead to ramp up in the production. Bhagyam EOR: Front End Engineering Design contract has been awarded and is in advance stage. Tendering for Rig, drilling & completion long lead items has also started while the company awaits the FDP approval from ONGC. The company expects an additional recovery of ~40 50 mm barrels of unswept oil still in ground at the Bhagyam field. The capital cost for Bhagyam EOR project is estimated at US$260mn, resulting in a development cost of ~US$ 5 6/bbl. Other developments at the Rajasthan block Aishwariya Infill: As on date, 12 wells out of the 20 wells infill campaign have been brought online. Balance wells have been drilled and will be brought online progressively in the current fiscal. Production from these wells has helped in arresting the natural decline in Aishwariya. Gas Development at RDG Field: Discussions on the pipeline are in an advanced stage with all stakeholders including PNGRB. In addition to optimizing existing infrastructure, Cairn India is also progressing on the tendering process for the new gas processing terminal. The company expects first gas from the new terminal in H2 CY17 subject to the pipeline approval. Aishwariya Barmer Hill The company has finalized the Field Development Plan and it is expected to be submitted to the JV Partner soon. Internal assurance process is completed, and discussion and alignment with the JV partner has been initiated to expedite the process. Under the current project, the recovery is expected at ~20 30 mn barrels of oil. The capital outlay for the project is estimated at ~US$ 300 mn, resulting in a development cost of ~US$ 10 15/bbl. Mangala ASP: The Mangala ASP Pilot was completed in Q4 FY15 with encouraging results. Work is currently under progress to upscale the results from pilot to full field and review possible expansion options after completing performance matching and modelling of the completed pilot in Q1 FY16. M&A Barmer Hill Appraisal: In Q1 FY16 the company brought online the balance 3 appraisal wells, hence all 15 wells of the Appraisal Phase are now producing for long term testing. The first phase of appraisal testing of other fields in Barmer Hill (DP, NL and V&V) has started. Exploration updates on other blocks KG Offshore (Block KG OSN 2009/3) Preliminary depth migrated preliminary seismic data have been interpreted for the maturation of prospects in the block and preparations are ongoing for exploratory drilling. Drilling is anticipated to commence in Q3 FY17, subject to all statutory clearances. KG Onshore (Block KG ON 2003/1) Cairn s, Joint Venture partner and operator, ONGC, has submitted a Field Development Plan to the Management Committee. The project is in pre development phase. 2

3 Cairn India (Q2 FY16) Mumbai Offshore (Block MB DWN 2009/1) Regional prospectivity analysis has been completed, together with interpretation of the newly acquired PSTM processed broadband 2D seismic data. The company is currently assessing the implication on block specific prospectivity and future exploration program. Palar Pennar (Block PR OSN 2004/1) The company continued to evaluate the prospect inventory and optimization of drilling locations in Q2 FY16 to prioritize and execute the outstanding drilling work program. Sri Lanka (SL ) The company has submitted the requisite closure documents to Petroleum Resources Development Secretariat (PRDS), the regulatory authority for petroleum resources in Sri Lanka. The review is under process and is expected to be closed in October South Africa (Block 1) Evaluation of in board prospectivity for oil and gas commenced in last quarter and is currently ongoing. Ravva production declines sequentially During the quarter, Ravva block produced total of 2.4 million boe at an average rate of 26,064 boepd, 17% higher yoy. Though the field is on natural decline, the decline rate is arrested by employing prudent reservoir management practices including sustained higher water injection rates and deeper gas lift injection. Cambay production sees recovery The block produced a total of 1 mm boe at an average of 11,172 boepd in Q2 FY16. Effective reservoir management practices have helped in achieving higher production as the well intervention program was executed in Q1FY16. Realizations fall in line with global slump in crude oil prices During Q2 FY16, Cairn India reported crude oil realizations of US$43.7/bbl as compared to US$92.1/bbl in Q2 FY15 and US$56.3/bbl in Q1 FY16. Gas realizations were at US$7/mscf a decline of 4% yoy but increase of 5% qoq. Operating profit lower than estimates Cairn India reported lower than estimated operating profit of Rs. 979crs led by lower than expected revenues (on the back of lower than estimated volumes). OPM was at 43.7% a fall of 26ppts yoy and 860bps qoq. Operating expense in producing blocks was at US$6.8/boe as compared to US$6.7/boe in Q2 FY15 and US$6.5/boe in Q1 FY16. Lower exploration write offs, forex gains and tax reversal leads to in line PAT performance During Q2 FY16, Cairn India reported a net profit of Rs. 673crs. This was in line with our expectations of Rs. 659crs. Lower than expected operating profit was offset by 49.1% yoy fall in exploration write offs and 58.5% yoy jump in foreign exchange fluctuation gains. Tax write back of Rs131crs also helped the cause. 3

4 Cairn India (Q2 FY16) Cut estimates but maintain Accumulate rating We are cutting our estimates to factor in lower crude oil prices. While valuations FY17E P/E of 8.8x look attractive risks such as flat production guidance, increasing profit petroleum share, rising production costs due to higher proportion of expensive fields such as Barmer Hill and polymer flooding, impending merger risks, soft crude oil price outlook in the near term, cut in capex guidance impacting long term production, PSC only up to 2020 management confident of extension till 2030 would continue to weigh on the stock. Cash of Rs15,597cr vs market cap of Rs28,882cr provides some valuation cushion. With the price gap between Vedanta and Cairn India increasing substantially the merger is now at risk. We maintain our Accumulate rating with a target price of Rs170. Financial summary Y/e 31 Mar (Rs cr) FY14 FY15 FY16E FY17E Revenues 18,762 14,646 9,956 10,677 yoy growth (%) 7.1 (21.9) (32.0) 7.2 Operating profit 14,098 9,621 4,906 4,991 OPM (%) Pre exceptional PAT 12,432 7,113 3,166 3,266 Reported PAT 12,432 4,480 3,166 3,266 yoy growth (%) 3.1 (64.0) (29.3) 3.2 EPS (Rs) P/E (x) Price/Book (x) EV/EBITDA (x) Debt/Equity (x) RoE (%) RoCE (%) Source: Company, India Infoline Research 4

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