Cairn India: Forex gain fuels June quarter
A muted outlook on global crude oil prices will play spoilsport for the stock
Cairn India Ltd shareholders are unlikely to be enthused by the company’s June quarter performance. Sure, consolidated net profit is above Street estimates at ₹ 3,127 crore, representing an 18% decline on a year-on-year (y-o-y) basis. For perspective, Bloomberg pegged Cairn India’s June quarter net profit at around ₹ 2,800 crore.
Why wouldn’t investors give brownie points then? The main reason is that net profit got a boost from a forex gain of ₹ 682 crore. Cairn India’s revenue came in at ₹ 4,063 crore after accounting for profit sharing with the government of India and the royalty expense on the company’s Rajasthan block. Cairn India’s reported revenue last quarter was slightly lower than Bloomberg’s estimate of ₹ 4,119.6 crore. The company’s revenue was affected to an extent by an increase in the profit petroleum payout to the government to 30% from 20% in Development Area 1 in the Rajasthan block. Profit petroleum refers to the total value of petroleum produced from the contract area in a particular period, reduced by the costs calculated as per the model production sharing contract.
Average price realization stood at $93.3 per barrel of oil equivalent, lower by 6% on a y-o-y basis as well as sequentially.
What offers some comfort, however, are Cairn India’s production numbers for the June quarter. The company’s average daily gross production stood at 212,442 barrels of oil equivalent per day, an increase of 5% over the March quarter and 3% on a y-o-y basis. According to the company, the Rajasthan block is currently producing around 180,000 barrels per day (bpd) of oil and remains on track for the year-end target of 200-215,000 bpd.
While that augurs well, it’s unlikely to do much for investor sentiment, as most of it seems to be factored in at the current price. The Cairn India stock currently trades at 5.7 times its estimated earnings for the current fiscal year, which isn’t demanding. What will drive investor interest is news flow of reserves accretion. Other than that, a muted outlook on global crude oil prices will play spoilsport for the stock, which is the only pure crude play in the country unlike state-run upstream oil companies, the earnings of which are affected on account of subsidy sharing.
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