4QFY2012 Result Update | Oil & Gas

April 20, 2012

Cairn India
Performance Highlights
Y/E March (` cr) Net sales EBITDA EBITDA margin (%) Adjusted PAT 4QFY2012 4QFY2011 3,651 2,981 81.6 2,403 3,654 3,059 83.7 2,515 % chg (yoy) 3QFY2012 % chg (qoq) (0.1) (2.6) (207)bp (4.4) 3,097 2,546 82.2 1,960 17.9 17.1 (55)bp 22.6

ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 66,151 0.9 401/250 463,115 10 17,374 5,291 CAIR.BO CAIR@IN

`347 `372
12 Months

Source: Company, Angel Research

For 4QFY2012, Cairn India (CIL) reported a marginal decline of 0.1% yoy in its top line. The companys EBITDA and adjusted PAT for the quarter decreased by 2.6% and 4.4% yoy, respectively. CIL reports modest 4QFY2012 results: CILs top line declined marginally by 0.1% yoy to `3,651cr (above our expectation of `3,437cr). Gross crude oil realization increased by 16.0% yoy to US$109.3/bbl. Operating margin contracted by 207bp yoy to 81.6%, resulting in a 2.6% yoy decline in operating profit to `2,981cr for the quarter. CIL recorded an exceptional loss of `217cr due to forex fluctuation during 4QFY2012. Excluding this exceptional gain, adjusted net profit declined by 4.4% yoy to `2,403cr (above our estimate of `2,263cr). CIL reports rise in potential resources: During 4QFY2012, CIL reported that its estimated potential resources increased to 7.3bboe compared to earlier estimate of 6.5bboe. The recoverable reserves estimate also increased from 1.4bboe to 1.7bboe during the quarter. Outlook and valuation: CIL has the infrastructure in place to ramp up production to meet its targets. Hence, we expect production to gradually increase in the coming quarters to reach a capacity of 175kbopd by FY2013 and 205kbopd by FY2014. Further, there are various untapped exploratory upsides in Barmer Hills and other fields waiting to be developed. Hence, we recommend Accumulate on the stock with a target price of `372.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 58.9 7.0 7.4 26.7

Abs. (%) Sensex Cairn India

3m 3.8 (0.1)

1yr (10.8) (0.0)

3yr 58.2 88.0

Key financials (Consolidated)

Y/E March (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011 10,278 533.3 6,334 502.6 80.2 33.3 10.4 1.6 17.1 17.4 6.2 7.8

FY2012E 11,861 15.4 7,938 25.3 75.3 42.1 8.2 1.4 17.9 15.9 4.9 6.5

FY2013E 15,513 30.8 9,754 22.9 74.0 51.1 6.8 1.1 18.3 18.3 3.2 4.3

FY2014E 16,074 3.6 9,268 (5.0) 69.7 48.5 7.1 1.0 14.8 14.8 2.4 3.4

Bhavesh Chauhan
Tel: 022 - 3935 7800 Ext: 6821 [email protected]

Please refer to important disclosures at the end of this report

Cairn India | 4QFY2012 Result Update

Exhibit 1: 4QFY2012 performance

Y/E March (` cr) Net sales Operating expenditure Other expenditure EBITDA EBITDA Margin (%) Other Income DD&A Exploration costs w/o Interest Forex fluctuation PBT PBT Margin (%) Total Tax % of PBT Exceptional items (Royalty) PAT Minority interest Adj. PAT PAT Margin (%)
Source: Company, Angel Research

4QFY12 3,651 414 256 2,981 81.6 92 401 65 31 (217) 2,360 64.6 174 7.4 2,186 2,403 65.8

4QFY11 3,654 305 290 3,059 83.7 38 464 71 48 2,515 68.8 2,515 2,515 68.8

% chg (yoy) (0.1) 35.8 (11.8) (2.6) 140.5 (13.6) (36.0) (6.2) -

3QFY12 3,097 465 86 2,546 82.2 112 379 176 24 301 2,380 76.9 118 5.0 -

% chg (qoq) 17.9 (10.9) 197.5 17.1 (17.9) 6.0 (63.2) 27.2 (0.9) 46.6

(13.1) (4.4)

2,262 1,960 63.3

(3.3) 22.6

Exhibit 2: 4QFY2012 Actual vs. Estimates

(` cr) Net sales EBITDA EBITDA margin (%) PAT
Source: Company, Angel Research

Actual 3,651 2,981 81.6 2,403

Estimates 3,437 2,822 82.1 2,263

Variation (%) 6.2 5.6 (45)bp 6.2

Increased royalty and profit petroleum affects sales growth: CILs top line declined by 0.1% yoy to `3,651cr (above our expectation of `3,437cr) during 4QFY2012. Gross crude oil realization increased by 16.0% yoy to US$109.3/bbl. However, the positive impact of higher realization was offset by increased profit petroleum and royalty payments. The companys gross production averaged 180,293bopd during the quarter.

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Cairn India | 4QFY2012 Result Update

Exhibit 3: Net sales decreased by 0.1% yoy

4,000 3,500 3,000 2,500 1,069.1 1,200 1,000 800

(` cr)

2,000 1,500 1,000 500 -

525.0

427.5

341.7

400 0.0 (1.3) (0.1) 200 0 -200

2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 Net sales

Source: Company, Angel Research

Net sales growth (RHS)

Operating margin contracts by 207bp yoy: CILs operating margin contracted by 207bp yoy to 81.6% in 4QFY2012, resulting in a 2.6% yoy decline in operating profit to `2,981cr.

Exhibit 4: Operating margin stood at 81.6%

3,500 3,000 2,500 80.9 82.8 85.9 90 79.3 82.2 81.6 80

85.5

(` cr)

2,000 1,500 1,000 500 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 Operating profit Operating margin (RHS)

60 50 40

Source: Company, Angel Research

Adjusted PAT decreases by 4.4% yoy: CIL recorded an exceptional loss of `217cr on account of forex fluctuation during 4QFY2012. Excluding this exceptional gain, adjusted net profit declined by 4.4% yoy to `2,403cr (above our estimate of `2,263cr).

April 20, 2012

(%)

70

(%)

600

Cairn India | 4QFY2012 Result Update

Exhibit 5: Adjusted PAT decreased by 4.4% yoy

3,200 2,800 2,400 2,000 590.9 237.7 (2.5) (85.6) 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 Adjusted PAT
Source: Company, Angel Research

1,200.0 902.4 868.9 1,000.0 800.0

(` cr)

1,600 1,200 800 400 PAT growth (RHS)

400.0 (4.4) 200.0 (200.0)

CIL reports rise in potential resources: During 4QFY2012, CIL reported that its estimated potential resources increased to 7.3bboe compared to earlier estimate of 6.5bboe. The recoverable reserves estimate also increased from 1.4bboe to 1.7bboe during the quarter.

April 20, 2012

(%)

600.0

Cairn India | 4QFY2012 Result Update

Investment arguments
CIL aims to increase production to 240kbopd by CY2013
CIL commenced production from Bhagyam oil field during 4QFY2012, where it aims to gradually increase its capacity to 40kbopd. CIL also aims to reach an exit capacity of 240kbopd by CY2013-end.

Exploratory upsides awaited

There are various untapped exploratory upsides in Barmer Hills and other fields waiting to be developed and commercialized. Currently, various schemes related to exploratory drillings and optimization of producing fields are awaiting approvals from the government. CIL has recently announced two discoveries in Mannar Basin, Sri Lanka.

Outlook and valuation

CIL has the infrastructure in place to ramp up production to meet its targets. Hence, we expect production to gradually increase in the coming quarters to reach a capacity of 175kbopd by FY2013 and 205kbopd by FY2014. Further, there are various untapped exploratory upsides in Barmer Hills and other fields waiting to be developed. Hence, we recommend Accumulate on CIL with a target price of `372.

Exhibit 6: SOTP valuation (FY2014E)

Particulars (` cr) MBA (DCF) Ravva and Cambay basin (EV/boe 11x) Barmer Hills (EV/boe 8x 50% discount to MBA) Other exploratory upsides (EV/boe 4x 75% discount to MBA) Total EV Net debt Equity value (`)
Source: Company, Angel Research

`/share 295 9 11 46 361 (11) 372

Exhibit 7: Key operating assumptions

Particulars Total Rajasthan Production (kboepd) Opex Rajasthan (US$/bbl)
Source: Company, Angel Research

FY2013E 175 2.8

FY2014E 205 2.8

Exhibit 8: Angel EPS forecast vs. consensus

Angel Forecast FY2013E FY2014E
Source: Company, Angel Research

Bloomberg Consensus
51.9 48.8

Variation (%)
(1.6) (0.5)

51.1 48.5

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Cairn India | 4QFY2012 Result Update

Exhibit 9: Recommendation summary

Company RIL ONGC CIL GAIL CMP (`) 731 266 347 361 TP (`) 872 319 Reco. Mcap (` cr) Buy 267,037 Buy 227,704 66,151 45,766 Upside 19 20 8 9 P/E (x) 11.1 8.6 6.8 10.2 10.4 7.9 7.1 9.7 P/BV (x) 1.1 1.5 1.1 1.8 1.0 1.4 1.0 1.6 EV/EBITDA (x) 6.5 3.4 4.3 5.2 5.6 2.9 3.4 4.3 RoE (%) 11.9 18.8 18.3 18.7 11.5 18.1 14.8 17.0 RoCE (%) 9.1 17.9 18.3 22.9 9.2 17.9 14.8 21.0 (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E

372 Accum. 392 Accum.

Source: Angel Research

April 20, 2012

Cairn India | 4QFY2012 Result Update

Profit & Loss Statement (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure EBITDA % chg (% of Net Sales) Total Recouped cost EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2010 FY2011 FY2012 1,623 1,623 1,623 13.3 643 981 7.8 60.4 357 623 32.2 38.4 29 422 41.6 1,016 4.5 1,016 (35) (3.4) 1,051 1,051 33.4 64.8 5.4 5.4 32.9 10,278 10,278 10,278 533.3 2,033 8,245 740.9 80.2 1,193 7,052 1031.1 68.6 291 129 1.9 6,890 577.9 6,890 556 8.1 6,334 6,334 502.6 61.6 32.4 32.4 498.3 11,861 11,861 11,861 15.4 2,926 8,935 8.4 75.3 1,440 7,495 6.3 63.2 226 319 4.2 7,588 10.1 (103) 7,691 (247) (3.2) 7,938 8,041 26.9 67.8 42.1 42.1 26.5 FY2013E FY2014E 15,513 15,513 15,513 30.8 4,033 11,481 28.5 74.0 1,440 10,041 34.0 64.7 305 664 6.4 10,400 37.1 10,400 647 6.2 9,754 9,754 21.3 62.9 51.1 51.1 21.3 16,074 16,074 16,074 3.6 4,877 11,197 (2.5) 69.7 1,719 9,478 (5.6) 59.0 254 667 6.7 9,891 (4.9) 9,891 623 6.3 9,268 9,268 (5.0) 57.7 48.5 48.5 (5.0)

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Cairn India | 4QFY2012 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash and Deposits Loans & Advances Other Current liabilities Net Current Assets Misc. exp. not written off Total Assets 722 96 626 9,163 25,319 1,712 2,373 929 832 612 1,481 893 37,714 6,654 730 5,924 6,067 25,319 1,094 7,961 4,485 1,666 1,849 2,927 5,034 94 43,533 9,354 2,171 7,183 5,067 25,319 1,094 14,165 8,992 2,248 2,925 2,467 11,697 94 50,455 11,874 3,610 8,264 4,067 25,319 1,094 23,498 17,425 2,248 3,825 2,828 20,671 94 59,509 13,994 5,330 8,664 2,567 25,319 1,094 33,766 27,554 2,248 3,963 3,128 30,638 94 68,377 1,943 31,925 33,868 3,401 445 37,714 1,902 38,336 40,293 2,678 561 43,533 1,909 46,452 48,416 1,478 561 50,455 1,909 56,205 58,170 778 561 59,509 1,909 65,473 67,437 378 561 68,377 FY2010 FY2011 FY2012E FY2013E FY2014E

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Cairn India | 4QFY2012 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr)

FY2010 1,016 178 (708) (175) 234 545 (3,366) 2,529 236 (601) 2 (880) (168) (1,045) (1,102) 2,413 637

FY2011 FY2012E 6,890 1,223 (1,009) (1,259) (486) 6,331 (2,565) 624 (2,957) (4,897) 67 (733) (199) (866) 568 637 1,205 7,691 1,440 (2,156) (319) 247 6,902 (1,700) 319 (1,381) 185 (1,200) (1,015) 4,507 4,485 8,992

FY2013E 10,400 1,440 (540) (664) (647) 9,989 (1,520) 664 (856) (700) (700) 8,433 8,992 17,425

FY2014E 9,891 1,719 162 (667) (623) 10,482 (620) 667 47 (400) (400) 10,129 17,425 27,554

Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Others Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Others Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Interest Paid (Incl. Tax) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances

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Cairn India | 4QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Interest) 0.1 2.5 21.1 (0.0) (0.2) 24.2 (0.2) (0.8) 33.2 (0.3) (1.4) 33.0 (0.4) (2.4) 37.3 0.7 51.6 51.5 615.3 (102.2) 0.7 11.0 31.8 202.0 9.1 0.4 25.0 47.8 123.8 50.1 0.4 35.3 44.1 77.6 70.0 0.3 39.3 49.1 82.2 71.9 1.7 2.4 3.2 17.4 23.3 17.1 15.9 21.6 17.9 18.3 27.0 18.3 14.8 24.9 14.8 5.4 5.4 7.4 178.1 33.3 33.3 39.4 211.9 42.1 42.1 49.7 254.6 51.1 51.1 58.6 305.8 48.5 48.5 57.6 354.6 63.9 46.9 1.9 0.0 42.0 69.6 1.8 10.4 8.8 1.6 0.0 6.2 7.8 1.5 8.2 7.0 1.4 0.0 4.9 6.5 1.2 6.8 5.9 1.1 0.0 3.2 4.3 0.8 7.1 6.0 1.0 0.0 2.4 3.4 0.6 FY2010 FY2011 FY2012E FY2013E FY2014E

April 20, 2012

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Cairn India | 4QFY2012 Result Update

Research Team Tel: 022 3935 7800

E-mail: [email protected]

Website: www.angelbroking.com

Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Cairn India No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

April 20, 2012

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