For Q1’10, Cairn India Limited’s (CIL’s) net revenues declined 49.2% y-o-y to Rs2,049.5 million. This decline was largely due to a 15.2% y-o-y fall in the net production per day and a 46.2% y-o-y decline in average price realizations ($51.2 per boe), partly offset by the depreciation of the rupee.
Overall results have benefited from higher other income, which included income from investments of Rs571 million and forex gains of Rs718 million. In addition, there was a write-back of deferred taxes to the extent of Rs418.6 million.
However, the Company’s reported net profit fell 67.2% y-o-y to Rs454.7 million on account of an exceptional provision of Rs1,637.1 million for a past-profit petroleum payment pertaining to Ravva that was due to the GoI. The matter is currently under appeal in the higher court.
We maintain a Hold rating for the stock based on our DCF-based net asset value at Rs250.
Key Assumptions for arriving at the value include (i) company’s potential to grow its production volumes significantly in FY09- FY14. The company currently reports net 695 mmboe of 2P reserves yielding an attractive RP ratio of 75 years based on the estimated production for FY’10 (ii) increase in price realisations to reflect the impact of the recent recovery in crude oil prices; we expect crude prices to hover at $70 -80/bbl in the near term.
However, this is partly offset by a 15% discount on pricing (vs.10% assumed earlier) as per the revised pricing formula.
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