Amidst uncertainties surrounding its acquisition by Vedanta, Cairn India posted a strong December 2010 quarter result, which was substantially better than September 2010 quarter’s numbers. Higher production and higher oil prices enabled it to become cash surplus during the quarter. The company is readying for higher production from its Rajasthan fields, while investing in exploration of other blocks. The Mangala field ran at its plateau production of 125,000 barrels per day for the first time in the December quarter. As a result, the company’s share of oil production surpassed the 100,000 barrels per day level. The company’s realised price during the quarter at $74.3 per barrel of oil equivalent (boe) was 15% higher against the year-ago period. Its net realised price represented around 13.5% discount to the average Brent price for the period, in line with the company’s guidance of 10-15% discount.
The Mangala field, which was the first one to go on production in the company’s Rajasthan block in August 2009, has reached its peak production level of 125,000 bpd as approved by the government and its joint venture partner ONGC. The company is awaiting approvals to ramp it up to 150,000 bpd. Simultaneously, it has begun development work on the secondlargest Bhagyam field. Production from this field is scheduled to begin in the second half of 2011, which will be ramped up to its approved plateau of 40,000 bpd by the year end.
In the meantime, cashflows from operations jumped by 30% compared with the September quarter to around Rs 2,039 crore. This enabled the company to become cash surplus. At the end of the December 2010 quarter, the company’s cash stood higher than its outstanding borrowings by Rs 870 crore. With this, the company replaced its Rs 4,000 crore loan facility by raising Rs 2,250 crore from debentures. This helped the company save on interest cost while earning higher other income compared with the preceding quarter. The interest cost for the December quarter was Rs 74 crore, 42% lower than the September quarter. Production at Bhagyam is likely to commence in the second half of 2011. The company will start drilling exploration wells off Sri Lanka.
With the approval for its acquisition by Vedanta group still pending, the company’s valuations have suffered. A few brokerage houses believe the scrip is available at reasonable price. According to Kotak Securities, the company is currently trading at 6.3 times its expected earnings for FY12. Elara Securities also said that, but for the uncertainties over its acquisition, the scrip could have gone up to Rs 450 on the back of rising crude prices.
Retail shareholders may feel relieved by Cairn India’s refusal to accept any adverse condition for approval of its acquisition.
The Mangala field, which was the first one to go on production in the company’s Rajasthan block in August 2009, has reached its peak production level of 125,000 bpd as approved by the government and its joint venture partner ONGC. The company is awaiting approvals to ramp it up to 150,000 bpd. Simultaneously, it has begun development work on the secondlargest Bhagyam field. Production from this field is scheduled to begin in the second half of 2011, which will be ramped up to its approved plateau of 40,000 bpd by the year end.
In the meantime, cashflows from operations jumped by 30% compared with the September quarter to around Rs 2,039 crore. This enabled the company to become cash surplus. At the end of the December 2010 quarter, the company’s cash stood higher than its outstanding borrowings by Rs 870 crore. With this, the company replaced its Rs 4,000 crore loan facility by raising Rs 2,250 crore from debentures. This helped the company save on interest cost while earning higher other income compared with the preceding quarter. The interest cost for the December quarter was Rs 74 crore, 42% lower than the September quarter. Production at Bhagyam is likely to commence in the second half of 2011. The company will start drilling exploration wells off Sri Lanka.
With the approval for its acquisition by Vedanta group still pending, the company’s valuations have suffered. A few brokerage houses believe the scrip is available at reasonable price. According to Kotak Securities, the company is currently trading at 6.3 times its expected earnings for FY12. Elara Securities also said that, but for the uncertainties over its acquisition, the scrip could have gone up to Rs 450 on the back of rising crude prices.
Retail shareholders may feel relieved by Cairn India’s refusal to accept any adverse condition for approval of its acquisition.
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