Cairn India’s results for the June ‘10 quarter, although substantially better compared to the year-ago period, fell short of analyst’s expectations. However, they underline the key change in the company’s growth trajectory, which is likely to continue growing till its production from Rajasthan fields reach a plateau level of 175,000 barrels per day by mid-’11.
It was mainly the multi-fold spurt in interest and depreciation cost that weighed heavy on Cairn’s profits. The interest cost jumped to Rs 49.3 crore from Rs 0.73 crore in the year-ago period, while the depreciation rose to Rs 166 crore from Rs 41 crore.With the commissioning of its pipeline, the company ramped up its Rajasthan production to an average of 44,400 barrels per day from 17,500 bpd in the March quarter. At present, the production has been further increased to nearly the 100,000 bpd level, which will be scaled up to 125,000 bpd by end-’10.
Rising oil production as well as higher oil prices also brought in substantially more cash in business. Cairn’s operating cash flows increased to Rs 493 crore compared to Rs 108 crore in the year-ago period. As the company chose to repay a part of its debt, the unutilised portion of its debt increased to Rs 3,991 crore by end-June from Rs 3,387 crore as at end-March ‘10, while the cash kitty came down marginally to Rs 2,544 crore from Rs 2,631 crore.The average oil price realisation in the June ‘10 quarter was $72 per barrel as against $60.2 during the corresponding quarter of the previous year.
Cairn’s scrip has continued its steady upward movement even in the last few days of market turbulence. Since its results, the scrip has gained 1% as against a 1% fall in BSE Sensex. Although considering historical profits, the company’s valuations appear stretched over the next 12-18 months as it reaches its full earning capacity from current assets, the valuations will appear attractive. Long-term investors should remain invested in the company for rich returns.
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