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Over the past nine months, since Vedanta announced plans to acquire
majority stake in Cairn India (CAIR), shares of CAIR have moved sideways
while Brent is up 50%. Given the lackluster performance, the Catch-22
situation for investors is to either: (a) hold the stock from a long-term view ,
given the underlying high-quality asset base; or (b) quit, factoring in a steep
discount to SOTP that makes the stock unattractive. We have quantified the
impact of what-ifs and conclude that CAIRs shares will remain range-
bound in the near term, whilst continuing to offer upside in the long term.
Base case SOTP of INR 370/share
Our SOTP (end March 2012) stands at INR 370/share (10% upside from CMP),
underpinned by core asset value of INR 320/share and exploration upside of INR
50/share.
In a bear scenario, INR 63/share impact due to royalty, cess issueOur SOTP comes down by INR 63/share if royalty becomes cost-recoverable and
CAIR continues to pay INR 2,575 as cess.
Potential 10% discount to SOTP with Vedanta coming on board
Since 2005, Vedanta has, on an average, traded at a 20-25% discount to BHP
Billiton and Rio Tinto, but over the past three years the discount to BHP has
dipped to 9%. CAIR could trade at a discount of ~10% near term, in our view.
Gearing to oil price wrecked over past nine months
CAIR has typically seen a strong correlation with crude prices, but over the past
nine months, its shares have moved sideways even as Brent prices increased50%. We believe this disconnect will persist over the near term.
Bull case of INR 469/share remains attractive
Our bull case of INR 469/share is driven by: (a) gross production from the
Rajasthan block peaking at managements stated vision of 240 kb/d; (b)
incremental exploration upside of 150 mmboe from Sri Lanka and KG fields; and
(c) long-term oil price of USD 100/bbl.
Outlook and valuations: Balanced risk-reward; maintainHOLD
We maintain ourHOLDrecommendation and SOTP of INR 370/share on CAIR,
but lower the relative rating to Sector P erformerfrom Sector Outperformer
as uncertainties cloud the investment case for the near term.
India Equity Research | Oil, Gas and Services Company Update
CAIRN INDIA
Uncertainties cloud attractive long-term investment case
May 12, 2011
Reuters: CAIL.BO Bloomberg: CAIR IN
EDELWEISS 4D RATINGS
Absolute Rating HOLD
Rating Relative to Sector Performer
Risk Rating Relative to Sector Medium
Sector Relative to Market Overweight
Note:Please refer last page of the report for rating explanation
MARKET DATACMP : INR 336
52-week range (INR) : 372 / 266
Share in issue (mn) : 1,901.9
M cap (INR bn/USD mn) : 639 /14,280
Avg. Daily Vol. BSE/NSE (000) : 4,346.1
SHARE HOLDING PATTERN (%)
Promoters* : 62.2
MFs, FIs & Banks : 7.2
FIIs : 11.7
Others : 18.9
* Promoters pledged shares
(% of share in issue): NI
PRICE PERFORMANCE (%)
Stock Nifty EW O & G
Index
1 month (1.8) (3.8) 0.7
3 months 4.4 4.8 7.1
12 months 14.3 8.4 5.5
Niraj Mansingka, CFA
+91 22 6623 3315
Aditya Suresh
+91 22 4063 5478
Financials
Year to March FY09 FY10 FY11E FY12E
Net revenues (INR mn) 14,327 16,230 106,166 150,107
EBITDA (INR mn) 9,098 9,805 87,225 124,855
Net profit (INR mn) 8,035 10,511 62,008 95,235
Diluted EPS (INR) 4.2 5.5 32.4 49.8
Diluted P/E (x) 81.9 62.6 10.6 6.9
EV/EBITDA (x) 69.2 67.4 7.2 4.5
ROAE (%) 2.6 3.2 16.8 21.5
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Edelweiss Securities Limited 2
Oil, Gas and Services
Base case SOTP of INR 370/share
On August 16, 2010, the Vedanta Group (Vedanta) announced plans to acquire 51-60%
stake in Cairn India (CAIR) from Cairn Energy Plc. (Cairn Energy), CAIRs majority
stakeholder, for a consideration of USD 8.59.6 bn in cash. As per the deal proposal,
minority shareholders would get INR 355/share, while Cairn Energy an additional INR
50/share as non-compete fee. We note that the deal was proposed at a time when Brent
was roughly ~USD 75-80/bbl versus the current ~USD 110/bbl. Structurally, we believe
that long-term oil price assumptions have moved up by USD 5-10/bbl.
Consensus fair value range for CAIR is between ~INR 290/share and INR 480/share.
Our fair value SOTP for CAIR stands at INR 370/ share, underpinned by core
asset value of INR 320/ share and exploration upside of INR 50/ share. However,
we believe that the stock will trade at ~10% discount to SOTP over the next 12 months
until there is clarity on: (a) cash deployment plans post the Vedanta transaction; and (b)
royalty payments.
Key assumptions in our base case
1) Rajasthan block
a. Production: Gross oil production ramps up to a peak of 210 kb/d by FY13 with 5
years of plateau production. Beyond FY18, we assumed a decline rate of 8%.
b. We assume royalty is not cost-recoverable.
c. Cess = INR 927/tonne from FY14 (versus current rate of INR 2,575/tonne),
basically implying the cess issue (currently under arbitration) is ruled in favour
of CAIR.
2) Other blocks
a. Ravva: Production decline stopped and plateau production of 31kb/d maintained
till FY15 due to a combination of horizontal and infill drilling.
b. KG-DWN-98/2: 7 tcf of gross recoverable reserves; production starts in FY17
3) Exploration upside: Risked net reserves = 375 mmboe; average NPV USD 6.3/boe.
4) Oil price: USD 90/bbl long-term; WACC: 11.0%; USD/I NR: 46.0.
Chart 1: CAIR bu ll-bear SOTP break-up
Source: Edelweiss research
271
370469
-2 -5 -10 -13-18
-5046 31
16 3 3
0
100
200
300
400
500
BearCase
Others
LowerKGBasinPdtn
LowerExplnupside
Cess=
INR2575/ton
USD80/bblOil
Royaltycost-
recovery
BaseCase
RajasthanRamp-Up
USD100/bblOil
HigherExplnUpside
RavvaPlateauExtn
HigherKGPdtn
BullCase
(INR/sh)
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Edelweiss Securities Limited 3
Cairn IndiaTable 1: CAIR bull-bear case SOTP valuations
Chart 2: INR 370/ share base case SOTP underpinned by Rajasthan block
Chart 3: Gross oil production profile from Rajasthan block
Source: Edelweiss research
SOTP Valuation
Block NPV (INR mn) NPV (INR/share)NPV
(INR mn)
NPV
(INR/share)
NPV (INR
mn)
NPV
(INR/share)
RJ-ON-90/1 (Rajasthan) 471,317 247 616,362 323 317,777 167
KG-DWN-98/2 18,108 9 23,292 12 7,840 4
CB/OS-2 9,743 5 10,387 5 9,176 5
Ravva 15,630 8 23,689 12 10,437 5
Exploration upside 95,000 50 125,000 65 75,000 39
FY12 end net cash 96,588 51 96,588 51 96,588 51
Mar-12 SOTP fair value 706,386 370 895,317 469 516,818 271
CMP 336 336 336
% upside 10.2 39.6 (19.4)
Base case (USD 90/bbl) Bull case (USD 100/bbl) Bear case (USD 80/bbl)
370
247
50
9 8 5
51
0
80
160
240
320
400
Rajasthan
(peak
210kb/d)
Exploration
Upside
KGBasin
Ravva
Cambay
NetCash
BaseCase
BaseSOTP(INR/sh
)
0
50
100
150
200
250
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22
FY24
FY26
FY28
FY30
GrossOilPdtn(kb/d)
Mangala Bhagyam Aishwaraya Rajasthan Others
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Oil, Gas and Services
Table 2: CAIR oil and gas reserve valuation summary
Source: Edelweiss research
INR 63/share impact due to royalty and cess issue, in a bear scenario
To incentivise participation in the pre-NELP licensing rounds, govt. exempted private players
from paying royalty on oil produced from the fields, with the entire burden of these payments
falling on ONGC and OIL.
Royalty: We believe that as per the Production Sharing Contract (PSC), ONGC (with 30%
stake) is liable to pay full 20% royalty on oil produced from the RJ-ON-90/1 (Rajasthan)
block. However, ONGC believes that royalty payments should be cost recoverable - i.e.
include royalty payments as part of the project cost, which can later be recovered before
profits splitting - and is currently discussing its case with the govt. In case govt. makes
royalty payments cost-recoverable, our fair value SOTP comes down by INR 50/share.
Cess: The PSC terms do not explicitly require CAIR to pay any cess on the Rajasthan block.
However, on order of the Petroleum Ministry, CAIR, under protest, is paying cess of INR
2,575/tonne for oil produced from the block; the matter is currently under arbitration. In a
scenario where CAIR is required to pay cess of INR 2,575/tonne for the life of the field, our
fair value SOTP comes down by INR 13/share.
In our base case SOTP, we assume ONGC continues to pay full royalty and cess
payment comes down to INR 927/ tonne starting FY14 (assumed same as payment
currently made for Ravva).
Production Activity
Gas
(bcm)
Oil
(mmt)
O+OEG
(mtoe)
O+OEG
(bn boe)
NPV
(USD/boe)
NPV
(USD bn)
NPV
(INR bn)
NPV
(INR sh)
Ravva 0.7 2.4 3.0 0.0 17.5 0.4 16 8
KG-DWN-98/2 20.4 0.0 18.4 0.1 3.4 0.5 18 9
CB/OS-2 1.7 0.7 2.3 0.0 14.5 0.2 10 5
RJ-ON-90/1 (Rajasthan) 0.0 91.7 91.7 0.7 17.5 11.8 471 247
Total 22.9 94.8 115.4 0.8 52.9 12.9 515 270
Exploration & Appraisal Activity
Block
Gross
reserves
(mn boe)
Stake
(%)
Net
reserves
(mn boe)
Risk
(%)
Net
reserves
(mn boe)
NPV
(USD/boe)
NPV
(USD bn)
NPV
(INR
bn)
NPV
(INR sh)
RJ-ON-90/1 (Rajasthan) 1,900 70% 1,330 8% 100 10.0 1.0 40 21
Prospective resources (Rajasthan) 2,500 70% 1,750 10% 175 5.0 0.9 35 18
Exploration of other blocks 1,000 100% 1,000 10% 100 5.0 0.5 20 10
Total 2,900 80% 2,330 10% 375 6.3 2.4 95 50
Royalty cost-recoverable =SOTP comes down by INR50/share
Cess of INR 2,575/tonne forthe field life = SOTP comesdown by INR 13/share
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Cairn India
Potential 10% discount to SOTP with Vedanta coming on board
Historically, we believe CAIR has traded at ~5-10% premium to SOTP due to its high-
quality asset base and leverage to crude prices. With likelihood of Vedanta coming on-
board, the key question is should CAIR trade at a discount to SOTP? Since 2005, Vedanta
has, on an average, traded at a 20-25% discount to BHP Billiton and Rio Tinto. However,
over the past three years, the discount to BHP Billiton has dipped to 9% (refer Chart 4).
We believe shares of CAIR could trade at a discount of ~10% to SOTP in the near term.
CAIR could potentially re-rate, if there is further clarity on: (a) capital redeployment
plans by Vedanta; and (b) ONGC continues to pay full royalty for the Rajasthan block.
Chart 4: Vedanta has traded at a 9% discount to BHP over the past three years
Source: Edelweiss research
Gearing to oil price wrecked over past nine months
CAIR has typically seen a strong correlation with crude prices, but over the past nine
months its shares have moved sideways even as Brent prices increased 50%. We believe
this disconnect will persist for the same reasons as discussed above.
Chart 5: CAIRs high correlation w ith oil price w recked, following Vedantas acquisition plans
Source: Edelweiss research
-100%
-50%
0%
50%
100%
150%
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
VedantaDisc/Prem
(EV/T12MEBITDA)
Vedanta vs BHP Vedanta vs RIO
0
50
100
150
200
250
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Prices
(rebasedJan2008)
Cairn India Brent
CAIR has historicaltraded at a premium
to Brent..
0
50
100
150
200
250
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
Price(rebasedAug16,10')
Cairn India Brent
.. but, the correlation iswrecked over last 9 months
CAIR could trade at 10%discount to NAV near term
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Oil, Gas and Services
Spelling out the upside case at CAIR (INR 469/share bull case SOTP)
In our bull case, we highlight a path to INR 469/share for CAIR, with gross production from
the Rajasthan block peaking at managements stated vision of 240 kb/d (versus 210 kb/d in
the base case). To reach 240 kb/d peak production, we have assumed incremental
cumulative capex of USD 130 mn versus the base case. Key issues: (a) ONGC allowing
further production ramp-ups in Rajasthan, while having to pay full royalty; and (b) post
acquisition capital allocation plans of Vedanta.
Table 3: Drilling plan summary in FY12/ 13
Source: Company Reports, Edelweiss research
1. Barmer Hill (1.9 bn boe gross STOIIP, RJ-ON-90/1)
CAIR has characterised its acreage in Barmer Hill as highly prospective, with estimated
gross STOIIP (stock tank initial oil in place) of 1.9 bn boe. With recovery rates in
analogous fields averaging between 7% and 20%, the company estimates gross
recoverable resource of 140mmboe (~20% of current 2P reserves in Rajasthan). On its
part, CAIR has submitted a declaration of commerciality for the prospect. It is currently
drafting a pilot well test plan and intends to exploit the resources in the field in a staged
manner.
2. Ravva fields (horizontal and infill dril ling to extend plateau)
Following two consecutive years of production decline in Ravva fields (current production
~30 kb/d from a 10-year plateau of ~50kb/d), the company has started to employ a
combination of infill and horizontal drilling to enhance and extend the plateau of the field.
In our base case, we assume CAIR successfully arresting the production decline and
maintaining a plateau rate of 31kb/d for the next six years by incurring incremental
capex of USD 200 mn.
3. Further upside from Enhanced oil recovery
To maximise oil production from the existing Rajasthan discoveries, CAIR has started to
implement proven Enhanced Oil Recovery (EOR) methods, with the pilot stage involving
drilling of 10 wells in the Mangala field. The stated potential for the EOR plan is a)
increase 2P reserves by 300mmboe and b) extend the plateau production (currentplateau assumed at four years). In the Q3FY11 conference call, management highlighted
that eight wells had already been drilled and were in the water injection
phase. Management added that subject to necessary govt. approvals, the company
would implement EOR across the entire Rajasthan block starting 2013.
4. Wild cards: (a) Sri Lanka remains an unexplored frontier play with a three-well drilling
plan set to commence in July 2011; (b) KG-DWN-98/2 material discovery made in
UD1 well; ONGC is yet to submit FDP; (c) KG-ONN 2003/1 high quality
Nagayalanka-1Z discovery; appraisal drilling to commence in FY12.
Block LocationOn/Off
ShoreOperator
Working
InterestDrilling plan
RJ-ON-90/1 Barmer Hill (Rajasthan) Onshore Cairn 70% Pilot plans drafted
SL-2007-01-001 Sri Lanka (Mannar Basin) Offshore Cairn 100%6-month drilling program to commence by
July 2011; 3 wells planned
PKGM-1 Ravva Offshore Cairn 23% Horizontal and infill drilling commenced
KG-ONN-2003/1 KG Basin Onshore Cairn 49%Nagayalanka-1Z discovered; E&A by end
2011
Bull case of INR 469/share,primarily driven byRajasthan blocks rampingup to 240kb/d peak
production
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Cairn India
Sensitivity analysis
We flex our fair value SOTP to four key factors: (a) crude price; (b) Rajasthan gross oil
production levels; (c) WACC; and d) USD/INR. Key takeaway: For every USD 1/bbl
increase in crude price, CAIRs SOTP increases by INR 2.6/ share.
Chart 6: SOTP impac t
Source: Edelweiss research
Table 4: CAIR SOTP sensitivity analysis
Source: Edelweiss research
+3.2
+2.6
+1.3
0.0
0.8
1.6
2.4
3.2
4.0
1% rupee deprn +$1/bbl crude -10bps WACC
SOTPimpact(INR/sh)
150 kb/d 180kb/d 210 kb/d 240kb/d 270kb/d
USD 70/ bbl 261 290 318 337 351
USD 80/ bbl 281 313 345 366 380
USD 90/ bbl 299 335 370 393 409
USD 100/ bbl 318 357 396 420 437
USD 110/ bbl 336 379 421 448 465
9% 10% 11% 12% 13%
USD 70/ bbl 341 329 318 308 299
USD 80/ bbl 371 357 345 333 323
USD 90/ bbl 400 384 370 357 346
USD 100/ bbl 428 411 396 382 369
USD 110/ bbl 457 438 421 406 392
9% 10% 11% 12% 13%
42.0 377 363 350 338 328
44.0 388 373 360 348 337
46.0 400 384 370 357 346
48.0 411 395 380 367 355
50.0 422 406 391 377 364
BrentLT
price
WACC
Rajasthan Gross Production
BrentLT
price
WACC
USD/INR
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Oil, Gas and Services
Financial Statements
Income statement (INR mn)
Year to March FY09 FY10 FY11E FY12E FY13E
Net revenue 14,327 16,230 106,166 150,107 173,953
Increase/decrease in stocks 222 (366) - - -
Lifting costs 1,075 2,782 6,489 8,369 10,462
Production expenses 2,130 4,248 16,688 22,927 18,051
Employee costs 1,145 1,441 1,118 1,157 1,197
Statutory levies 1,054 1,466 10,199 14,558 7,589
Other Expenses 1,732 1,102 1,135 1,169 1,204
Total operating expenses 5,007 6,791 18,941 25,252 20,452
EBITDA 9,098 9,805 87,225 124,855 153,502
Recouped cost 4,382 3,570 11,071 9,205 18,459
EBIT 4,716 6,235 76,154 115,650 135,043
Other income 5,945 4,077 1,735 3,580 6,680
Foreign exchange gain/(loss) (717) - - - -
Interest expenses 64 148 2,880 1,650 1,350Profit before tax 9,879 10,163 75,008 117,580 140,373
Provision for tax 1,844 (348) 13,000 22,344 26,676
Current taxes 1,111 2,216 15,000 22,344 26,676
Deferred taxes 623 (1,087) 1,500 - -
Fringe tax benefit 110 (1,477) (3,500) - -
Core profit 8,035 10,511 62,008 95,235 113,697
Profit After Tax 8,035 10,511 62,008 95,235 113,697
Profit after minority interest 8,035 10,511 62,008 95,235 113,697
Basic shares outstanding (mn) 1,897 1,897 1,908 1,914 1,914
Basic EPS (INR) 4.2 5.5 32.5 49.8 59.4
Diluted equity shares (mn) 1,914 1,914 1,914 1,914 1,914
Diluted EPS (INR) 4.2 5.5 32.4 49.8 59.4
CEPS (INR) 6.9 6.9 39.1 54.6 69.0
Dividend per share (INR) - - 1.6 5.0 8.9
Common size metrics - as % of net
Year to March FY09 FY10 FY11E FY12E FY13E
Direct Cost 14.9 26.2 15.7 15.3 10.4
Other expenses 12.1 6.8 1.1 0.8 0.7
Depreciation 30.6 22.0 10.4 6.1 10.6
Interest expenditure 0.4 0.9 2.7 1.1 0.8
EBITDA margins 63.5 60.4 82.2 83.2 88.2
Net profit margins 56.1 64.8 58.4 63.4 65.4
Growth ratios (% )Year to March FY09 FY10 FY11E FY12E FY13E
Revenues 41.5 13.3 554.1 41.4 15.9
EBITDA 36.4 7.8 789.6 43.1 22.9
PBT 684.5 2.9 638.0 56.8 19.4
Net profit (3,373.6) 30.8 489.9 53.6 19.4
EPS (3,178.4) 30.8 489.9 53.6 19.4
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Cairn India
Balance sheet (INR mn)
As on 31st March FY09 FY10 FY11E FY12E FY13E
Equity capital 18,967 18,970 19,084 19,142 19,142
Reserves & surplus 308,668 319,250 379,468 466,325 562,967
Shareholders funds 328,023 338,683 398,552 485,466 582,109Secured loans 222 34,007 30,000 25,000 20,000
Unsecured loans 43,342 - - - -
Borrowings 43,564 34,007 30,000 25,000 20,000
Deferred tax liability 5,540 4,453 6,119 6,119 6,119
Sources of funds 377,128 377,144 434,671 516,586 608,228
Gross block 260,277 261,791 289,292 319,077 328,737
Depreciation 3,437 2,335 11,906 21,110 39,069
Net block 256,839 259,457 277,387 297,967 289,668
Capital work in progress 62,027 91,635 94,335 98,732 106,915
Total fixed assets 318,867 351,092 371,721 396,699 396,583
Investments 1,713 17,124 5,000 5,000 5,000
Inventories 1,683 2,909 12,740 18,013 20,874
Sundry debtors 1,516 3,067 14,863 21,015 24,353
Cash and equivalents 65,271 9,294 55,320 113,674 210,312
Loans and advances 3,505 8,318 47,775 67,548 78,279
Other current assets 704 145 1,380 1,951 2,261
Total current assets 72,680 23,734 132,078 222,201 336,080
Sundry creditors and others 11,794 9,869 47,775 67,548 78,279
Others current liabilities 4,337 4,937 26,353 39,767 51,156
Total current liabilities & provisions 16,132 14,806 74,127 107,315 129,435
Net current assets 56,548 8,928 57,950 114,886 206,645
Uses of funds 377,128 377,144 434,671 516,586 608,228
Book value per share (INR) 162.9 168.5 198.8 243.6 294.1
Free cash flow (INR mn)Year to March FY09 FY10 FY11E FY12E FY13E
Net profit 8,035 10,511 62,008 95,235 113,697
Depreciation 4,382 3,570 11,071 9,205 18,459
Deferred tax 623 (1,087) 1,500 - -
Others (6,251) (3,762) (188) (1,930) (5,830)
Gross cash flow 6,789 9,232 74,391 102,510 126,326
Less: Changes in WC 7,566 (8,357) (2,997) 1,418 4,879
Operating cash flow 14,355 876 71,394 103,928 131,205
Less: Capex (37,052) (31,122) (30,201) (34,183) (17,843)
Free cash flow (22,697) (30,247) 41,194 69,746 113,362
Cash flow metrics
Year to March FY09 FY10 FY11E FY12E FY13E
Operating cash flow 14,355 876 71,394 103,928 131,205
Investing cash flow (30,118) (44,173) (16,342) (30,603) (11,163)
Financing cash flow 66,564 (9,631) (9,027) (14,971) (23,405)
Net cash flow 50,802 (52,928) 46,025 58,355 96,638
Capex (37,052) (31,122) (30,201) (34,183) (17,843)
Dividends paid - - (3,100) (9,524) (17,055)
Share issuance/(buyback) 26,189 74 961 1,202 -
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Oil, Gas and Services
Profitability & efficiency ratios
Year to March FY09 FY10 FY11E FY12E FY13E
EBITDA margin (%) 63.5 60.4 82.2 83.2 88.2
ROAE (%) 2.6 3.2 16.8 21.5 21.3
ROACE (%) 1.4 1.7 19.3 24.6 24.2ROA 2.4 2.8 15.3 20.0 20.2
Receivable turnover (x) 10.0 7.1 11.8 8.4 7.7
Inventory turnover (x) 8.5 5.6 8.3 8.3 8.3
Payables turnover (x) 1.2 1.6 2.2 2.2 2.2
Inventory day 43 65 44 44 44
Debtors days 36 52 31 44 48
Payable days 300 222 164 164 164
Cash conversion cycle (days) (221) (105) (90) (77) (73)
Current ratio 4.5 1.6 1.8 2.1 2.6
Quick ratio 4.4 1.4 1.6 1.9 2.4
Cash ratio 4.0 0.6 0.7 1.1 1.6
Debt/EBITDA 4.8 3.5 0.3 0.2 0.1
Debt/Equity 0.1 0.1 0.1 0.1 -
Adjusted debt/equity 0.1 0.1 0.1 0.1 -
Interest coverage 73.6 42.1 26.4 70.1 100.0
Long term debt / Capital employed (%) 11.6 9.0 6.9 4.8 3.3
Total debt / Capital employed (%) 11.6 9.0 6.9 4.8 3.3
Operating ratios
Year to March FY09 FY10 FY11E FY12E FY13E
Total asset turnover - - 0.3 0.3 0.3
Fixed asset turnover 0.1 0.1 0.4 0.5 0.6
Equity turnover - - 0.3 0.3 0.3
Du pont analysisYear to March FY09 FY10 FY11E FY12E FY13E
NP margin (%) 56.1 64.8 58.4 63.4 65.4
Total assets turnover - - 0.3 0.3 0.3
Leverage multiplier 1.1 1.1 1.1 1.1 1.1
ROAE (%) 2.6 3.2 16.8 21.5 21.3
Valuation parameters
Year to March FY09 FY10 FY11E FY12E FY13E
Diluted EPS (INR) 4.2 5.5 32.4 49.8 59.4
Y-o-Y growth (%) (3,178.4) 30.8 489.9 53.6 19.4
CEPS (INR) 6.9 6.9 39.1 54.6 69.0
Diluted PE (x) 80.0 61.1 10.4 6.7 5.7
Price/BV (x) 2.1 2.0 1.7 1.4 1.1
EV/Sales (x) 43.9 40.7 5.9 3.8 2.7
EV/EBITDA (x) 67.4 65.7 7.0 4.4 2.9
EV/EBITDA (x)+1 yr forward 64.2 7.6 5.0 3.7 4.3
Dividend yield (%) - - 0.5 1.5 2.7
Basic EPS 4.2 5.5 32.5 49.8 59.4
Basic P/E (x) 79.3 60.6 10.3 6.7 5.7
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8/3/2019 Cairn India - Edelweiss - May 2011
11/12
Edelweiss Securities Limited
11
Cairn India
Company Absolute
reco
Relative
reco
Relative
risk
Company Absolute
reco
Relative
reco
Relative
Risk
Aban Offshore HOLD SU H Bharat Petroleum
Corporation
REDUCE SU M
Cairn India HOLD SP M Chennai Petroleum
Corporation
HOLD SP H
Essar Oil BUY SO H GAIL (INDIA) BUY SO L
Hindustan Petroleum
Corporation
REDUCE SU L Indian Oil Corporation HOLD SP M
Indraprastha Gas BUY SO L ONGC BUY SP L
Petronet LNG BUY SO L Reliance Industries BUY SO M
Shiv Vani Oil & Gas
Exploration Service
BUY SO M
RATING & INTERPRETATION
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING
Ratings CriteriaSector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
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8/3/2019 Cairn India - Edelweiss - May 2011
12/12
Edelweiss Securities Limited
Oil, Gas and Services
Edelweiss Research is also available onwww.edelresearch.com
Bloomberg EDEL Thomson First Call Reuters and Factset Edelweiss Securities Limited
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098.Board: (91-22) 4009 4400, Email: [email protected]
Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206
Nischal Maheshwari Head Research [email protected] +91 22 6623 3411
Coverage g roup( s ) o f s t ocks by p r i mary ana l yst ( s ) : Oi l ,Gas and Serv icesAban Offshore, Bharat Petroleum Corporation, Cairn India, Essar Oil, GAIL (INDIA), Hindustan Petroleum Corporation, Indraprastha Gas,Indian Oil Corporation, Chennai Petroleum Corporation, ONGC, Petronet LNG, Reliance Industries, Shiv Vani Oil & Gas Exploration Service
Distribution of Ratings / Market Cap
Edelweiss Research Coverage Universe
Rating Distribution* 118 51 17 189* 3 stocks under review
Market Cap (INR) 111 61 17
> 50bn Between 10bn and 50 bn < 10bn
Date Company Title Price (INR) Recos
Buy Hold Reduce Total
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