3QFY2012 Result Update | Oil & Gas

January 31, 2012

Cairn India
Performance Highlights
Y/E March (` cr) Net sales EBITDA EBITDA margin (%) Adjusted PAT 3FY2012 3QFY2011 3,097 2,546 82.2 1,960 3,096 2,598 83.9 2,010 % chg (yoy) 2QFY2012 % chg (qoq) (2.0) (169)bp (2.5) 2,652 2,104 79.3 232 16.8 21.0 287bp 745.1

ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (Rs) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 64,648 0.8 372/250 1570856 10 17,194 5,199 CAIR.BO CAIR@IN

`340 `367
12 Months

Source: Company, Angel Research

Cairn Indias (CIL) 3QFY2012 net sales remained flat yoy despite increased crude realization due to higher profit petroleum and royalty payment. The companys adjusted PAT decreased by 2.5% yoy. We recommend Accumulate on the stock. Higher profit petroleum and royalty dent 3QFY2012 performance: CILs top line remained flat yoy and stood at `3,097cr despite crude oil realization increasing by 33.0% yoy due to higher profit petroleum and royalty payment. CILs OPM contracted by 169bp yoy to 82.2%, resulting in a 2.0% yoy decline in operating profit to `2,546cr, while adjusted net profit declined by 2.5% yoy to `1,960cr during the quarter. CIL aims to increase production to 240kbopd by CY2013: Management maintained its guidance to reach exit capacity of 175kbpod by 4QFY2012-end. The company also aims to reach an exit capacity of 240kbopd by CY2013-end. Outlook and valuation: CIL has the infrastructure in place to ramp up production to meet its targets; however, currently it is awaiting approvals from the government. We expect production to gradually increase in the coming quarters to reach a capacity of 175kbopd by FY2013 and 225kbopd by FY2014. Further, there are various exploratory untapped upsides in Barmer Hills and other fields waiting to be developed. Hence, we recommend Accumulate on the stock with a target price of `367.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 52.1 7.7 6.6 33.6

Abs. (%) Sensex Cairn

3m (2.9) 13.7

1yr (6.2) 3.5

3yr 68.7 106.4

Key financials (Consolidated)

Y/E March (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 1,623 13.3 1,051 30.8 60.4 5.4 63.4 1.9 3.2 1.7 41.7 69.0

FY2011 10,278 533.3 6,334 502.6 80.2 33.3 10.3 1.6 17.1 17.4 6.2 7.7

FY2012E 13,170 28.1 8,381 32.3 77.6 43.9 7.8 1.3 18.8 18.9 4.4 5.7

FY2013E 14,715 11.7 9,893 18.0 80.4 51.8 6.6 1.1 18.4 18.7 3.3 4.1

Bhavesh Chauhan
Tel: 022 - 3935 7800 Ext: 6821 Bhaveshu.chauhan@angelbroking.com

Please refer to important disclosures at the end of this report

Cairn India | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance

Y/E March (` cr) Net sales Operating expenditure Other expenditure EBITDA EBITDA Margin (%) Other Income DD&A Exploration costs w/o Interest Forex fluctuation PBT PBT Margin (%) Total Tax % of PBT Exceptional items (Royalty) PAT Minority interest Adj. PAT PAT Margin (%)
Source: Company, Angel Research

3QFY2012 3QFY2011 % chg (yoy) 2QFY2012 % chg (qoq) 3,097 465 86 2,546 82.2 112 379 176 24 301 2,380 76.9 118 5.0 2,262 1,960 63.3 2,010 64.9 (2.5) 3,096 458 41 2,598 83.9 287 22 74 2,215 71.5 205 9.2 2,010 12.5 (42.1) 7.5 (67.7) 31.9 0.0 1.7 108.3 (2.0) 2,652 471 77 2,104 79.3 62 314 39 123 (531) 2,221 83.7 103 4.6 1,355 763 232 8.7 745.1 196.4 15.1 7.2 81.3 20.5 353.5 (80.5) 16.8 (1.2) 11.1 21.0

Exhibit 2: 3QFY2012 Actual vs. Estimates

(` cr) Net sales EBITDA EBITDA margin (%) PAT
Source: Company, Angel Research

Actual 3,097 2,546 82.2 1,960

Estimates 2,917 2,363 81.0 2,023

Variation (%) 6.1 7.7 120bp (3.1)

Payment of royalty affects sales growth: CILs top line remained flat yoy to `3,097cr (above our expectation of `2,917cr). Average crude oil realization increased by 33.0% yoy to US$101.1/bbl. However, the positive impact of higher realization was offset by `570cr of profit petroleum and royalty payment of `630cr. The companys gross production averaged 169,580boepd (-2.7% yoy). CIL remained optimistic to end the capacity from Mangala and Bhagyam field at 175,000bopd by FY2012E.

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Cairn India | 3QFY2012 Result Update

Exhibit 3: Net sales remained flat yoy

4,000 3,500 3,000 2,500 1,069.1 1,200 1,000 800 525.0 427.5 310.1 341.7 (1.3) 0.0

(` cr)

2,000 1,500 1,000 500 -

400 200 0 -200

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

Net sales Net sales growth (RHS)

Source: Company, Angel Research

OPM contracts by 169bp yoy: OPM contracted by 169bp yoy to 82.2%, resulting in a 2.0% yoy decline in operating profit to `2,546cr during the quarter.

Exhibit 4: Operating margin stood at 82.2%

3,500 3,000 2,500 77.0 80.9 82.8 85.5 79.3 90 82.2 80

85.9

(` cr)

2,000 1,500 1,000 500 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12
Operating profit Operating margin (RHS)

60 50 40

Source: Company, Angel Research

Adjusted PAT decreases by 2.5% yoy: CIL recorded an exceptional gain of

`301cr on account of forex fluctuation during 3QFY2012. Excluding this exceptional gain, adjusted net profit declined by 2.5% yoy to `1,960cr (in-line with our estimate of `2,023cr). Reported PAT grew by 12.5% yoy to `2,262cr.

January 31, 2012

(%)

70

(%)

600

Cairn India | 3QFY2012 Result Update

Exhibit 5: Adjusted PAT decreased by 2.5% yoy

3,200 2,800 2,400 2,000 902.4 590.9 868.9 1,200.0 1,000.0 800.0

(` cr)

1,600 1,200 800 400 -

237.7 (85.6) (2.5)

400.0 200.0 (200.0)

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

Adjusted PAT PAT growth (RHS)

Source: Company, Angel Research

Timelines uncertain on production growth beyond FY2012: CIL informed that Bhagyam block development is on track and ready to commence production in 3QFY2012, subject to government approvals. Also, the company is optimistic to reach an exit capacity of 175,000bopd by FY2012. However, management opined that due to constraints in pipeline capacity, further meaningful growth in production could be pushed beyond CY2012.

January 31, 2012

(%)

519.3

600.0

Cairn India | 3QFY2012 Result Update

Investment arguments
CIL aims to increase production to 240kbopd by CY2013
CIL commenced production from Bhagyam oil field during 4QFY2012, where it aims to gradually increase its capacity to 40kbopd. CIL maintained its guidance to reach exit capacity of 175kbpod by 4QFY2012-end. The company also aims to reach an exit capacity of 240kbopd by CY2013-end.

Exploratory upsides awaited

There are various exploratory upsides untapped in Barmer Hills and other fields waiting to be developed and commercialized. Currently, various schemes related to exploratory drillings and optimization of producing fields are awaiting approvals from the government. CIL has recently announced two discoveries in Mannar Basin, Sri Lanka. Management is expected to give details on the commerciality and potential reserves in the block during 4QFY2012.

Outlook and valuation

CIL has the infrastructure in place to ramp up production to meet its targets; however, currently it is awaiting approvals from the government. We expect production to gradually increase in the coming quarters to reach a capacity of 175kbopd by FY2013 and 225kbopd by FY2014. Further, there are various exploratory untapped upsides in Barmer Hills and other fields waiting to be developed. Hence, we recommend Accumulate on the stock with a target price of `367.

Exhibit 6: SOTP valuation (FY2013E)

Particulars (` cr) MBA (DCF) Ravva and Cambay basin (EV/boe 11x) Barmer Hills (EV/boe 8x 50% discount to MBA) Other exploratory upsides (EV/boe 4x 75% discount to MBA) Total EV Net debt Equity value (`)
Source: Company, Angel Research

`/share 286 9 11 36 342 (25) 367

January 31, 2012

Cairn India | 3QFY2012 Result Update

Exhibit 7: Key operating assumptions

Particulars Total Rajasthan Production (kboepd) Opex Rajasthan (US$/bbl)
Source: Company, Angel Research

FY2012E 140 2.8

FY2013E 175 2.8

Exhibit 8: Angel EPS forecast vs. consensus

Angel Forecast FY2012E FY2013E
Source: Company, Angel Research

Bloomberg Consensus
41.3 49.6

Variation (%)
6.3 4.5

43.9 51.8

Exhibit 9: Recommendation summary

Company RIL ONGC CIL GAIL CMP (`) 815 276 340 373 TP (`) 923 Accum. 325 440 Buy Buy 367 Accum. Reco. Mcap (` cr) 267,037 236,003 64,648 47,296 Upside 13 18 8 18 P/E (x) 12.7 8.8 7.7 12.0 11.8 8.3 6.6 10.5 P/BV (x) 1.4 1.8 1.3 2.1 1.3 1.5 1.1 1.8 EV/EBITDA (x) 7.1 3.8 5.6 6.2 6.7 3.3 4.0 5.4 RoE (%) 12.9 21.5 18.8 19.0 12.4 19.9 18.4 18.7 RoCE (%) 9.6 20.4 18.9 23.0 9.8 19.1 18.7 22.9 (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E

Source: Angel Research

January 31, 2012

Cairn India | 3QFY2012 Result Update

Profit & Loss Statement (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure EBITDA % chg (% of Net Sales) Total Recouped cost EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 1,433 1,433 1,433 41.5 523 910 36.4 63.5 438 472 126.4 32.9 6 507 52.2 972 187.7 (16) 988 184 18.7 803 788 (433.1) 55.0 4.1 4.1 (422.4) 1,623 1,623 1,623 13.3 643 981 7.8 60.4 357 623 32.2 38.4 29 422 41.6 1,016 4.5 1,016 (35) (3.4) 1,051 1,051 33.4 64.8 5.4 5.4 32.9 10,278 10,278 10,278 533.3 2,033 8,245 740.9 80.2 1,193 7,052 1031.1 68.6 291 129 1.9 6,890 577.9 6,890 556 8.1 6,334 6,334 502.6 61.6 32.4 32.4 498.3 FY2012E FY2013E 13,170 13,170 13,170 28.1 2,954 10,216 23.9 77.6 1,272 8,943 26.8 67.9 355 328 3.7 8,916 29.4 8,916 535 6.0 8,381 8,381 32.3 63.6 43.9 43.9 31.8 14,715 14,715 14,715 11.7 2,882 11,833 15.8 80.4 1,440 10,393 16.2 70.6 305 462 4.4 10,551 18.3 10,551 658 6.2 9,893 9,893 18.0 67.2 51.8 51.8 18.0

January 31, 2012

Cairn India | 3QFY2012 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash and Deposits Loans & Advances Other Current liabilities Net Current Assets Misc. exp. not written off Total Assets 445 80 365 6,203 25,319 171 7,268 6,527 351 390 1,613 5,655 37,713 722 96 626 9,163 25,319 1,712 2,373 929 832 612 1,481 893 37,714 6,654 730 5,924 6,067 25,319 1,094 7,961 4,485 1,666 1,849 2,927 5,034 94 43,533 9,354 2,003 7,351 5,067 25,319 1,094 14,447 8,951 2,248 3,247 2,474 11,972 94 50,898 11,874 3,442 8,432 4,067 25,319 1,094 23,629 17,752 2,248 3,628 2,544 21,085 94 60,091 1,936 30,867 32,802 4,356 554 37,713 1,943 31,925 33,868 3,401 445 37,714 1,902 38,336 40,293 2,678 561 43,533 1,909 46,895 48,859 1,478 561 50,898 1,909 56,788 58,752 778 561 60,091 FY2009 FY2010 FY2011 FY2012E FY2013E

January 31, 2012

Cairn India | 3QFY2012 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr)

FY2009 988 295 121 (146) 293 1,552 (3,161) (2,506) 152 (5,516) 2,552 3,746 (72) 6,226 2,262 150 2,413

FY2010 1,016 178 (708) (175) 234 545 (3,366) 2,529 236 (601) 2 (880) (168) (1,045) (1,102) 2,413 637

FY2011 6,890 1,223 (1,009) (1,259) (486) 6,331 (2,565) 624 (2,957) (4,897) 67 (733) (199) (866) 568 637 1,205

FY2012E 8,916 1,272 (2,472) (328) (535) 6,853 (1,700) 328 (1,372) 185 (1,200) (1,015) 4,466 4,485 8,951

FY2013E 10,551 1,440 (312) (462) (658) 10,559 (1,520) 462 (1,058) (700) (700) 8,801 8,951 17,752

Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Others Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Others Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Interest Paid (Incl. Tax) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances

January 31, 2012

Cairn India | 3QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Interest) (0.1) (2.4) 73.6 0.1 2.5 21.1 (0.0) (0.2) 24.2 (0.2) (0.7) 25.2 (0.3) (1.4) 34.1 0.7 36.9 36.5 575.4 (121.1) 0.7 51.6 51.5 615.3 (102.2) 0.7 11.0 31.8 202.0 9.1 0.4 24.5 45.5 123.1 49.5 0.3 37.9 47.4 91.1 78.8 1.4 1.8 2.6 1.7 2.4 3.2 17.4 23.3 17.1 18.9 25.6 18.8 18.7 27.7 18.4 4.1 4.1 6.4 172.5 5.4 5.4 7.4 178.1 33.3 33.3 39.4 211.9 43.9 43.9 50.6 256.9 51.8 51.8 59.4 308.9 84.2 53.4 2.0 0.0 44.0 69.3 1.7 63.4 46.5 1.9 0.0 41.7 69.0 1.8 10.3 8.7 1.6 0.0 6.2 7.7 1.5 7.8 6.8 1.3 0.0 4.4 5.7 1.1 6.6 5.8 1.1 0.0 3.3 4.1 0.8 FY2009 FY2010 FY2011 FY2012E FY2013E

January 31, 2012

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Cairn India | 3QFY2012 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

Disclaimer
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Cairn India No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

January 31, 2012

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