22 January 2015 3QFY15 Results Update | Sector: Oil & Gas Cairn India BSE SENSEX 29,006 Bloomberg S&P CNX 8,761 CAIR IN Equity Shares (m) 1,874.8 M.Cap. (INR b) / (USD b) 447.5/7.3 52-Week Range (INR) 1, 6, 12 Rel. Per (%) 385/228 -9/-42/-62 Avg Val (INR M)/Vol ‘000 842/2,687 Free float (%) 40.1 Financials & Valuation (INR Billion) Y/E MAR 2015E 2016E 2017E Sales EBITDA Adj. PAT Adj. EPS EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuation P/E (x) P/BV (x) EV/EBITDA Div. Yield 148.3 98.1 73.1 39.0 -40.1 326 12.3 12.3 38.2 134.4 73.2 42.0 22.4 -42.6 333 6.8 7.3 24.6 153.8 84.3 43.3 23.1 3.1 351 6.7 8.4 24.6 6.1 0.7 2.9 5.2 10.7 0.7 4.1 1.9 10.3 0.7 3.0 2.0 Estimate change TP change Rating change 26% 9% CMP: INR239 TP: INR250 (+5%) Neutral EBITDA beat, higher tax impacts PAT; cut oil price assumptions and estimates EBITDA beat, PAT below estimate: CAIR’s 3QFY15 sales at INR35b (est. INR32b, -30% YoY, -12% QoQ) were above estimate led by higher Ravva production at 28kboepd (est. 23kboepd, +35% QoQ) and lower profit petroleum at INR9.5b (v/s est. of INR12b). However, PAT was below estimate at INR13.5b (est. INR14.3b, -53% YoY, -41% QoQ) due to higher tax rate at 22% (v/s last eight-quarter average of 3.9%). Lower-than-expected other income at INR1.6b (v/s est. INR3.9b, +16% YoY, -53% QoQ) was compensated by higher forex gain at INR3.5b (v/s est. INR1.3b). Post 2QFY15 maintenance, Rajasthan 3QFY15 averaged 180kbpd, +10% QoQ: Increased contribution from satellite fields and Aishwariya ramp-up to 30bpd aided Rajasthan production to reach 180kbpd (-3% YoY, +10% QoQ). While the earlier production guidance is a three-year CAGR of 7-10%, it will be updated in 4QFY15 results. Rajasthan realization at USD68.3/bbl implies 10.8% discount to Brent (v/s 10.2% in 2QFY15). IOR/EOR on track with first polymer injected in October 2014. Guides to remain free cash flow positive and maintain absolute dividend: Despite the 55% crude price decline in the last six months and similar earnings impact, management indicated its intention to maintain the absolute dividend (implies ~40% payout v/s policy of 20%). In our view, CAIR’s guidance to remain free cash flow positive could entail some capex program cuts. Valuation and view We lower the Brent price assumption for FY16E/17E from USD75/85/bbl to USD60/70/bbl, resulting in 26% cut in FY16E/17E estimates. We maintain the absolute dividend estimate of INR12.5/sh in FY15E but continue to model 20% payout from FY16E. The stock trades at 10.7x FY16E EPS of INR22.4 and has a dividend yield of ~5% (based on fixed payout). Our SOTP-based fair value stands at INR250 (v/s INR275 earlier). Maintain Neutral. Harshad Borawake ([email protected]); +91 22 3982 5432 Investors are advised to refer through disclosures made at the end of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. Cairn India Takeaways from the Earnings Concall Cairn indicated that it has ability to maintain absolute dividend despite fall in earnings subject to board approval. Management clarified that its dividend policy of 20% is the minimum payout policy. It also clarified that if need arises it could use balance sheet reserves to pay the dividend. Aishwariya production reached 30kbpd as per approved plan. Reported forex gain in the income statement also includes exchange fluctuation gain from the USD1.25b loan given to the parent. Management clarified that based on change in the investment multiple government profit sharing trend could also reverse (i.e. it could again fall back to lower level). While Rajasthan PSC allows such reversal, no such provision exists in Raava or Cambay PSC. Despite the crude price fall, management guided that it aims to remain free cash flow positive implying cuts in the exploration / development plans Mangala IOR/EOR project is on schedule with first polymer injected on October 1, 2014 and critical package construction is in advanced stage. Production contribution is expected from 1QFY16. Other key highlights 22 January 2015 Profit petroleum in 3QFY15 stood at INR9.5b (v/s INR12.8b in 3QFY14 and INR11.3b in 2QFY15). The current government share in DA1 is 40% and DA2 is 30%. Rajasthan royalty share stood at INR6.9b (v/s INR11.1b in 3QFY14 and INR9.1b in 2QFY15). Other income stood at INR1.6b (v/s INR1.4b 3QFY14 and INR3.5b in 2QFY15). Sharp QoQ fall in other income is due to non-booking of mark-to-market gains on investments as per IFRS standards. Effective tax rate (PBT before forex changes) was higher in 3QFY15 at 22.8% (vs last 8 quarter average of 3.9%) led by lower MAT credit on account of lower crude price. Foreign exchange gain stood at INR3.5b (v/s loss of INR1.3b in 3QFY14 and gain of INR2.4b in 2QFY15). Gross cumulative Rajasthan capex stands at USD4.9b (89% in DA1 and 11% in DA2). 3QFY15 capex share stood at of USD247m. 2 Cairn India Exhibit 1: Cairn India: Operating Performance FY12 3Q 4Q 1Q FY13 2Q 3Q 4Q 1Q FY14 2Q 3Q 4Q 1Q FY15 2Q 3QFY15 (%) 3Q YoY QoQ Gross oil production (kbpd) Ravva 26.3 25.0 23.5 21.6 21.5 20.8 21.9 22.6 21.9 18.8 19.5 20.5 23.4 7.1 14.2 Cambay 4.8 5.1 4.7 4.3 4.6 4.5 8.6 6.8 8.2 7.3 8.4 8.4 8.9 8.4 6.7 Rajasthan 125.1 137.6 167.1 171.8 170.0 168.6 172.8 175.5 186.4 190.9 183.2 163.3 180.0 (3.4) 10.3 Sub-total 156.2 167.7 195.4 197.7 196.0 193.9 203.3 205.0 216.5 217.1 211.1 192.1 212.3 (1.9) 10.5 Gross gas production (mmscmd) Ravva 1.8 1.7 1.5 1.2 1.1 1.1 1.1 1.1 1.0 0.9 0.7 0.0 0.7 (27.0) 2,530 Cambay 0.5 0.5 0.4 0.4 0.4 0.3 0.4 0.3 0.3 0.3 0.4 0.4 0.4 6.8 (6.8) Rajasthan 0.1 0.1 0.1 0.3 0.2 0.2 0.2 98.5 0.0 Sub-total 2.3 2.2 2.0 1.6 1.5 1.4 1.6 1.4 1.4 1.3 1.2 0.4 1.1 (18.5) 162.3 Gross total (kboepd) 169.6 180.3 207.0 207.2 205.0 202.0 211.8 213.3 224.5 224.4 217.9 194.5 218.9 (2.5) 12.5 Net oil production (kbpd) Ravva (22.5%) Cambay (40%) Rajasthan (70%) Sub-total Net gas production (mmscmd) Ravva (22.5%) Cambay (40%) Rajasthan (70%) Sub-total 5.9 5.6 5.3 4.9 4.8 4.7 4.9 5.1 4.9 4.2 4.4 4.6 5.3 1.9 2.0 1.9 1.7 1.8 1.8 3.4 2.7 3.3 2.9 3.4 3.4 3.6 87.6 96.3 117.0 120.3 119.0 118.0 121.0 122.8 130.5 133.6 128.2 114.3 126.0 95.4 104.0 124.2 126.8 125.7 124.5 129.3 130.7 138.7 140.8 136.0 122.2 134.8 0.4 0.2 0.4 0.2 0.3 0.2 0.3 0.2 0.3 0.2 0.2 0.1 0.6 0.6 0.5 0.4 0.4 0.4 0.2 0.1 0.1 0.5 0.2 0.1 0.1 0.5 7.1 8.4 (3.4) (2.8) 14.2 6.7 10.3 10.3 0.2 0.1 0.2 0.1 0.2 0.2 0.0 0.2 0.2 (27.0) 2,530 0.1 6.8 (6.8) 0.4 0.3 0.3 0.2 0.3 (14.3) 91.2 Net oil + gas production (kboepd) Ravva (22.5%) Cambay (40%) Rajasthan (70%) Net Total (kboepd) 8.2 7.9 7.3 6.4 6.4 6.1 6.4 6.6 6.3 5.5 5.4 4.6 6.3 3.2 3.1 2.9 2.7 2.7 2.5 4.3 3.5 4.1 3.7 4.3 4.3 4.4 87.6 96.3 117.0 120.3 119.0 118.0 121.5 123.8 131.5 134.8 129.3 114.3 126.0 99.0 107.3 127.2 129.4 128.1 126.6 132.1 133.8 141.9 144.0 139.0 123.2 136.7 (0.3) 8.1 (4.2) (3.7) 34.9 4.3 10.3 11.0 Key Operating Metrics Fx rate (INR/USD) 51.0 (0.3) 2.1 50.2 54.2 55.5 54.2 54.2 55.9 62.5 62.0 62.0 59.8 60.5 61.8 Brent (USD/bbl) 109.3 118.8 108.7 110.0 110.0 113.5 102.8 110.6 109.2 107.7 109.7 102.0 Rajasthan realization (USD/bbl) Disc. to Brent (%) 100.3 108.5 100.5 97.6 95.6 99.7 94.3 96.0 95.6 95.2 97.5 91.5 68.3 (28.6) (25.4) (8.2) (8.7) (7.6) (11.3) (13.1) (12.2) (8.3) (13.2) (12.5) (11.6) (11.1) (10.3) (10.8) (13.3) 4.9 76.0 (30.4) (25.5) Natural gas (USD/mmbtu) Average realization (USD/boe) Average realisation (INR/boe) 4.3 4.3 4.4 4.5 4.5 5.0 4.8 5.7 5.7 5.9 5.4 7.1 6.1 6.8 (13.7) 98.3 106.7 99.3 96.7 95.0 99.5 93.3 95.3 94.9 94.4 93.3 95.3 68.1 (28.2) (28.5) 5,015 5,352 5,382 5,365 5,147 5,388 5,215 5,956 5,884 5,853 5,577 5,766 4,209 (28.5) (27.0) Source: MOSL, Company 22 January 2015 3 Cairn India Exhibit 2: CAIRN QUARTERLY P&L (INRb) INR B Gross revenues Less: Profit Petroleum FY12 3Q 4Q 1Q 43.0 49.5 59.9 5.7 6.5 6.8 FY13 2Q 3Q 61.0 58.5 7.0 7.2 FY14 4Q 1Q 2Q 3Q 59.4 59.9 69.8 73.9 7.2 10.5 12.4 12.8 4Q 73.5 12.0 1Q 73.3 17.8 FY15 2Q 60.2 11.3 Less: Levies (Cess + Royalty) Net Revenues Less: Opex EBITDA Less: Exploration w/off Less: D,D&A EBIT Less: Interest Add: Other Income PBT prior to FX fluctuations 9.2 28.0 2.5 25.5 1.8 3.8 19.9 0.2 1.1 20.8 15.6 37.5 2.5 34.9 0.4 4.4 30.2 0.3 1.0 30.9 16.8 37.3 2.7 34.5 0.3 4.5 29.7 0.2 2.2 31.8 15.6 35.7 2.8 32.9 0.3 4.8 27.8 0.1 1.8 29.5 15.5 36.8 4.2 32.6 3.7 4.7 24.2 0.2 2.2 26.2 17.8 43.7 5.2 38.4 1.6 6.4 30.5 0.1 4.1 34.4 18.0 37.5 4.5 33.1 2.5 7.2 23.3 0.0 4.2 27.5 15.6 33.3 5.4 27.9 1.3 7.0 19.5 0.1 3.5 22.9 8.7 (7.9) 2.4 (0.0) Forex gain / (loss) PBT Tax Tax rate (%) PAT EPS 3.0 23.8 1.2 5.0 22.6 11.8 10.5 32.5 2.7 29.8 0.6 4.0 25.1 0.3 0.9 25.8 (2.2) 23.6 1.7 7.4 21.9 11.4 39.5 23.9 1.3 0.7 3.2 2.9 38.3 23.2 20.0 12.2 31.9 26.2 0.3 0.6 1.0 2.2 31.6 25.6 16.5 13.4 15.9 33.5 3.4 30.1 1.0 5.2 23.9 0.1 1.3 25.1 18.3 39.2 3.9 35.3 0.5 5.5 29.3 0.1 1.1 30.3 18.9 42.3 5.3 36.9 1.0 5.9 30.0 0.1 1.4 31.3 6.8 4.3 (1.3) 31.9 34.6 30.0 0.6 0.8 1.2 1.9 2.3 3.8 31.3 33.9 28.8 16.4 17.7 15.1 (2.4) 32.0 1.6 5.1 30.4 15.9 1.0 2.4 28.5 1.3 4.5 27.2 14.2 25.3 2.6 10.1 22.8 11.9 3QFY15 (%) 3Q YoY QoQ 51.5 (30.4) (14.5) 9.5 (25.8) (16.2) 14.2 27.8 5.9 21.8 1.6 8.9 11.4 0.1 1.6 12.9 (24.7) (9.1) (34.3) (16.5) 10.9 10.5 (40.8) (21.7) 56.8 17.3 49.8 26.8 (62.1) (41.8) (7.5) 64.8 16.1 (52.9) (58.7) (43.7) 3.5 (374.0) 47.2 16.4 2.9 17.9 13.5 7.1 (45.2) (35.1) 155.5 14.9 366.1 77.2 (53.2) (40.8) (53.2) (40.8) Source: Company, MOSL Exhibit 3: CAIRN QUARTERLY P&L (USD/bbl) USD/bbl Gross revenues Less: Profit Petroleum FY12 FY13 FY14 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 92.6 101.0 95.5 92.3 91.7 96.2 89.1 90.8 91.3 91.5 12.3 13.2 10.9 10.6 11.3 11.6 15.7 16.1 15.8 14.9 1Q 97.0 23.5 FY15 2Q 87.8 16.5 3QFY15 (%) 3Q YoY QoQ 66.2 (27.5) (24.6) 12.2 (22.7) (26.1) Less: Levies (Cess + Royalty) 19.9 22.2 23.8 22.8 18.3 (21.5) (19.8) Net Revenues Less: Opex EBITDA Less: Exploration w/off 60.3 66.4 59.7 56.4 55.9 59.6 49.8 51.0 52.2 54.3 5.5 5.6 4.0 4.2 4.4 6.8 5.1 5.0 6.6 6.5 54.8 60.9 55.7 52.2 51.5 52.8 44.8 45.9 45.6 47.8 3.8 1.3 0.6 0.4 0.4 5.9 1.5 0.7 1.2 2.0 49.7 5.9 43.8 3.4 48.5 7.8 40.7 2.0 35.7 (31.6) (26.4) 7.6 15.5 (2.5) 28.1 (38.4) (30.9) 2.0 63.2 3.4 Less: D,D&A EBIT Less: Interest Add: Other Income PBT prior to FX fluctuations 8.2 42.9 0.5 2.4 44.8 8.2 51.4 0.6 1.9 52.6 9.5 30.9 0.0 5.5 36.4 10.3 28.5 0.1 5.0 33.5 11.5 56.0 11.8 14.6 (60.5) (48.7) 0.1 (3.6) 45.4 2.1 20.9 (58.5) 16.6 (57.0) (50.4) 6.5 (4.4) 13.8 (11.9) 51.3 2.5 10.7 48.7 48.2 3.5 15.0 44.6 63.0 2.0 5.1 61.0 Forex gain / (loss) PBT Tax Tax rate (%) PAT 21.4 24.9 7.0 48.1 0.5 1.5 49.2 25.4 6.8 45.0 0.3 3.4 48.1 36.2 1.1 4.4 35.1 24.4 25.1 7.6 43.5 0.1 2.9 46.3 7.7 39.2 0.2 3.6 42.5 3.7 (0.0) 50.0 0.5 1.6 49.5 42.5 0.9 3.6 41.5 23.6 7.7 35.6 0.2 1.9 37.3 23.8 23.3 7.1 38.2 0.1 1.4 39.4 7.4 37.0 0.1 1.7 38.7 7.9 37.9 0.1 5.1 42.9 10.1 5.6 (1.6) (3.0) 1.3 3.5 47.4 0.9 2.8 46.5 45.0 1.0 3.0 44.0 37.1 1.4 4.7 35.6 39.8 2.0 6.4 37.8 37.7 1.7 5.9 36.0 37.0 3.7 14.7 33.2 4.5 (385.3) 21.2 3.8 23.0 17.4 29.8 (42.9) (42.8) 166.1 1.4 385.4 56.3 (51.3) (47.7) Source: Company, MOSL 22 January 2015 4 Cairn India 180.0 183.2 1QFY15 163.3 190.9 175.5 2QFY14 4QFY14 172.8 1QFY14 186.4 168.6 4QFY13 3QFY14 170.0 3QFY13 125.1 3QFY12 171.8 125.3 2QFY12 2QFY13 125.1 1QFY12 167.1 118.0 4QFY11 1QFY13 124.9 3QFY11 137.6 116.1 3QFY15 2QFY15 4QFY12 4QFY10 44.7 3QFY10 2QFY11 17.5 2QFY10 1QFY11 6.0 15.4 1QFY10 Exhibit 4: Rajasthan Gross Production averaged 180kbpd, up 10% QoQ led by maintenance shutdown in 2QFY15 Source: Company, MOSL Exhibit 5: CAIRN Net O+G Production up QoQ led by Rajasthan (kboepd) Ravva (22.5%) Cambay (40%) 94 45 25 26 16 19 31 0 4 11 12 1QFY10 4QFY10 100 94 100 99 99 Rajasthan (70%) Net Total (kboepd) 142 144 139 137 134 132 129 128 127 127 123 107 96 81 87 83 88 88 88 3QFY11 2QFY12 117 120 119 118 122 124 1QFY13 4QFY13 131 135 129 3QFY14 114 126 2QFY15 Source: Company, MOSL Exhibit 6: Increasing production contribution from satellite fields Source: Company, MOSL 22 January 2015 5 Cairn India Rajasthan discount to Brent at ~10.8% Rajasthan realization stood at ~USD68.3/bbl (29% YoY, -25% QoQ), implying discount to Brent at ~10.8% (v/s 12.5% in 3QFY14 and 10.2% in 2QFY15). Cairn continues to guide Rajasthan realization discount to Brent between 8-13%. Exhibit 7: Rajasthan discount to Brent at 10.8% in 3QFY15 v/s 10.2% in 3QFY15 16% 14% 12% 10% 8% 6% 3QFY15 2QFY15 1QFY15 4QFY14 3QFY14 2QFY14 1QFY14 4QFY13 3QFY13 2QFY13 1QFY13 4QFY12 3QFY12 2QFY12 1QFY12 4QFY11 3QFY11 2QFY11 1QFY11 4% Source: Company, MOSL Exploration and development program on track Cairn had planned to spend USD3b over the next three years of which USD2.4b will be spent on Rajasthan, with 81% to be spent in FY15 and FY16. Fall in the crude price will definitely lead to realignment of the Cairn’s capex program. Management has indicated that low oil price gives them optionality to be selective about growth projects. CAIR in 1QFY15 increased in-place oil and gas resources at Rajasthan from 7b boe (4bboe discovered + 3bboe under exploration) to 10bboe and the current FY14-16 exploration program is targeting the initial 7bboe resource base. Cairn tested ~50% of the undiscovered 3bboe reserves and in the ongoing exploration program it has reported 11 discoveries of the 36 wells drilled. It plans to test the remaining 50% of 3bboe resources by FY16 and beyond FY16 will be targeting to test the newly added 3bboe of resources. Exhibit 8: On land portfolio and concentrated resource base offers Cairn cost advantages over its peers *Size of the bubble indicates Market Cap (USD Bn) 22 January 2015 Source: Company, MOSL 6 Cairn India Exhibit 9: Ongoing exploration campaign tested ~50% (1.4bboe) planned resources Source: Company, MOSL Exhibit 10: Update on Cairn’s Key Exploration blocks No. Exploration Blocks 2QFY15 update 3QFY15 update 1 KG-ONN-2003/1 - Management committee approved commerciality - In November 2014, MC approved extension of block declaration on July 9, 2014. appraisal thus regularising the extended well testing of (Carin: 49%) - Operatorship for development transferred to ONGC as per Nagayalanka-1zST and drilling of Nagayalanaka-NW-1z. the PSC and preparation of Development Plan underway. 2 KG-OSN-2009/3 block (Carin: 100%) - Processing of recently acquired 3D seismic survey is complete and delivery of fast track volume is expected soon. Planning underway for additional 3D/2D from January 2015. - Planning a four well drilling campaign. - 934 sqkm 3D data acquired, interpretation focused upon building a high quality prospect inventory. - Upon completion of interpretation, planning for a four well drilling campaign will begin. - Site survey data acquisition, required to complete drilling planning, is expected in mid-2015. 3 MB-DWN-2009/1 - 2,128 line-km of 2D broadband seismic has been acquired - Processing of 2,128 line km of 2D broadband seismic block (Carin: and processing of the same has begun. on track and expected to be delivered in Q4 FY15. 100%) - Planning to acquire addl 500sqkm of 3D data. - Regional work is ongoing and options for acquisition of 3D seismic data are pending the outcomes of the 2D interpretation. 4 PR-OSN-2004/1 - Excusable delay granted in August 2014 by MoPNG and - Revised date of the expiry of Phase-1 is expected to block further extension of Exploration Phase-1 pending with be 30th June 2017. (Carin: 35%) regulators. - Planning for three well drilling program is underway - Planning 3-well program; reprocessing of vintage 503km2 and reprocessing of vintage 503sqkm Palar 3D seismic is planned for Q4 FY15. Palar 3D seismic planned for 3QFY15. 5 Srilanka Block SL - Discussions with Sri Lankan govt. over the commercial 2007-01-001 terms still under progress. (Carin: 100%) - Commercialization of gas discoveries continues to present challenges. - Refining technical evaluation of remaining prospects that could ultimately add to discovered resource base. - Cairn plans to commence 3D seismic reprocessing in the current quarter. 6 South Africa Block - Interpretation of 3D seismic continues and a robust - Exploration prospects identified based on 2013 3D 1 prospect inventory is now identified. seismic survey, which covers oil prone outboard portion (Carin: 60%) - Focus remains on outboard portion of the block which is of Block 1. interpreted as oil prone. - In current quarter, Cairn plans to progress well- Environmental clearances and other planning activities are planning and necessary environmental clearances to under process to enable exploration drilling by early 2016. enable exploratory drilling in 2016. Source: Company, MOSL 22 January 2015 7 Cairn India Valuation and view Key event to watchout would be CAIR’s realignment of the capex plan in view of sharp fall in the crude prices and likely impact on the production guidance. Other events to watch out are (1) Rajasthan production trend, (2) Updates on reserves and (3) Update on other exploration blocks and (4) clarity on Rajasthan PSC extension. With cash at INR178b and USD1.25b loan to parent, to watch out for future cash utilization. As against current Rajasthan production of ~180kbps, CAIR’s production guidance of 7-10% looks challenging and we model ~6% CAGR in our estimates with FY16/FY17 at 197/215kbpd respectively. As cut our Brent price assumption for FY16/17 from USD75/85/bbl to USD60/70/bbl resulting in 26% cut in FY16/17 estimates. We maintain absolute dividend of INR12.5/sh in FY15 but continue to model 20% payout from FY16. The stock trades at 10.7x FY16E EPS of INR22.4 and has dividend yield of ~5% (based on fixed payout). Our SOTP based fair value stands at INR250 (v/s INR275 earlier), Maintain Neutral. Exhibit 11: Cairn India: Key Assumptions Y End: March 31 Exchange Rate (USD/INR) Brent Crude Price (USD/bbl) Disc. for Rajasthan Crude (USD/bbl) Rajasthan net realization (USD/bbl) FY11 45.6 86.7 12.0% 76.3 FY12 47.9 114.5 9.4% 103.7 FY13 54.5 110.5 11.0% 98.3 FY14 60.6 107.6 11.4% 95.3 FY15E 61.0 84.5 10.6% 75.5 FY16E 62.0 60.0 10.6% 53.6 FY17E 62.0 70.0 10.6% 62.6 Rajasthan gross production (kbpd) Rajasthan Cess (INR/MT) Govt. sharing (%) 99 2,625 0% 128 2,625 10% 170 4,635 20% 181 4,635 30% 177 197 215 4,635 4,635 4,635 40% 40% 40% Source: Company, MOSL Exhibit 12: Cairn India SOTP: We value Cairn at INR250/sh Source: MOSL 22 January 2015 8 Cairn India Story in Charts Exhibit 13: Well diversified portfolio with assets ranging from Exhibit 14: Cairn’s pipeline gives access to majority of exportation to production as well as 2 overseas assets domestic refineries as well as export option Source: Company, MOSL Source: Company, MOSL Exhibit 15: Cairn has continually upgraded in-place resource base Source: Company, MOSL 22 January 2015 Exhibit 16: …as well as estimated (mmboe) ultimate recovery Source: Company, MOSL 9 Cairn India Exhibit 17: …however Mangala decline, slower Bhagyam ramp-up, halted Rajasthan production ramp-up in FY15 170 181 197 177 Exhibit 18: Management vision to produce 300kbpd at Rajasthan 215 300 128 170 99 99 181 177 197 215 128 9 FY12 FY13 FY14 FY15E FY16E FY17E FY10 FY11 FY12 FY13 FY14 FY15EFY16EFY17E Source: Company, MOSL Exhibit 19: Cairn’s Rajasthan discoveries till date block has reported 30 Vision Source: Company, MOSL Exhibit 20: Correlation between Cairn stock price and Brent Crude Price 400 Cairn stock price (INR/sh) Brent (USD/bbl) - RHS 200 300 150 200 100 100 50 - Jan-07 Jan-11 Jan-09 Jan-13 Source: Company, MOSL Target Price Exhibit 22: 1 Yr Fwd Cairn India P/B Chart Source: Company, MOSL 22 January 2015 0.7 0.7 May-14 Oct-13 Mar-13 Jul-12 0.6 Dec-11 250 1.6 1.2 0.9 Apr-11 7.7 Avg(x) 1.2 1.2 Sep-10 0 8 Peak(x) Min(x) 1.5 Feb-10 0.0 0.3 PB (x) Median(x) 1.8 Jun-09 INR/sh 128 3 2 75 (34) 242 Nov-08 Rajasthan (incl. Barmer Hill) Ravva Cambay Investments Less: Net Debt / Add (Cash) Base Value Potential Upsides Rajasthan resources (Prospective) KG-Onland (Discovered) USDb 3.9 0.1 0.1 2.3 (1.0) 7.5 Source: Company, MOSL Mar-08 Exhibit 21: We value Cairn on SOTP basis at INR250/sh Jan-15 Jan-15 FY11 Source: Company, MOSL 10 Cairn India Corporate profile Company description Exhibit 23: Sensex rebased Cairn India, an E&P company, listed in January 2007 through an IPO after it spun off from its parent Cairn Energy Plc. Cairn Energy sold its majority stake to Vedanta group making it a parent with ~60% stake. Cairn has working interest in 9 E&P blocks. Ravva and Cambay blocks produce about 34kboepd (Cairn WI 9.2kbpd). The Rajasthan block, which accounts for ~80% of Cairn’s reserves, produced at ~191kbpd (Cairn WI ~ 134kbpd) in 4QFY14. Exhibit 24: Shareholding pattern (%) Dec-14 Exhibit 25: Top holders Sep-14 Dec-13 Promoter 59.9 59.9 58.8 DII 10.7 9.8 10.4 FII 15.3 16.8 16.3 Others 14.1 13.5 14.6 Holder Name % Holding Cairn UK Holdings Ltd LIC of India 9.8 9.1 Note: FII Includes depository receipts Exhibit 26: Top management Exhibit 27: Board of director Name Designation Name Name Navin Agarwal Chairman Navin Agarwal Naresh Chandra* Mayank Ashar Managing Director & CEO Mayank Ashar Tarun Jain Sudhir Mathur CFO Aman Mehta* Priya Agarwal Mike Yeager Chairman, Operations Review Board Omkar Goswami* Neerja Sharma Darran Lucas Director, Exploration Edward T Story* *Independent Exhibit 28: Auditors Exhibit 29: MOSL forecast v/s consensus Name Type S R Batliboi & Co LLP Statutory Nessr & Associates Secretarial Audit Shome & Banerjee Cost Auditor 22 January 2015 EPS (INR) FY15 FY16 FY17 MOSL forecast 39.0 22.4 23.1 Consensus forecast 45.2 38.3 34.1 Variation (%) -13.7 -41.6 -32.3 11 Cairn India Financials and valuations (INR Million) Income Statement Y/E March Net Sales Change (%) Change in Stock Employee Costs Operating Costs EBITDA % of Net Sales 2010 16,230 13.3 -366 1,102 5,689 9,805 60.4 2011 102,779 533.3 -264 1,105 16,709 85,228 82.9 2012 131,130 27.6 -263 861 22,475 108,056 82.4 2013 175,241 33.6 -274 1,033 39,603 134,880 77.0 2014 187,617 7.1 -141 2,741 44,233 140,784 75.0 2015E 148,274 -21.0 -331 2,000 48,514 98,091 66.2 2016E 134,447 -9.3 0 2,300 58,924 73,223 54.5 2017E 153,800 14.4 0 2,645 66,837 84,318 54.8 D,D&A (incl. w/off) Interest Other Income EBIT Forex Fluctuations Exceptional Item PBT Tax Rate (%) Adjusted PAT Change (%) -3,570 -295 3,505 9,446 718 0 10,164 -348 -3.7 10,511 30.1 -13,596 -2,909 1,288 70,011 -1,112 0 68,899 5,556 7.9 63,343 502.6 -17,391 -2,220 3,194 91,639 6,148 -13,552 84,235 4,857 5.3 92,929 46.7 -23,008 -687 7,228 118,414 3,134 1,888 123,436 2,351 2.0 119,198 28.3 -27,098 -415 7,834 121,106 7,390 0 128,496 4,178 3.4 124,318 4.3 -37,167 -168 13,151 73,906 6,927 0 80,834 7,685 10.4 73,148 -41.2 -43,554 0 15,846 45,516 0 0 45,516 3,528 7.8 41,988 -42.6 -47,111 0 17,229 54,437 0 0 54,437 11,151 20.5 43,286 3.1 2010 18,970 319,714 338,683 34,007 4,619 377,310 2011 19,019 383,913 402,932 26,782 5,750 435,465 2012 19,074 463,847 482,921 0 6,841 489,762 2013 19,102 457,892 476,994 0 4,641 481,635 2014 19,076 555,301 574,377 0 7,356 581,733 2015E 18,746 592,023 610,769 0 8,834 619,603 2016E 18,746 606,064 624,810 0 8,606 633,416 2017E 18,746 639,033 657,780 0 8,334 666,114 1,270 4,995 91,635 59,236 20,850 39,819 59,294 30,207 45,002 60,645 33,366 43,850 60,193 38,644 56,969 56,349 32,979 95,792 51,897 24,196 131,956 46,836 13,277 141,307 253,193 17,124 253,193 10,945 253,193 18,356 151,889 103,823 151,922 163,638 151,922 143,105 151,922 143,105 151,922 143,105 2,909 3,067 9,294 8,462 3,277 14,829 44,847 16,655 8,268 14,968 70,135 35,010 6,420 22,852 55,568 61,600 56,798 25,124 17,619 86,002 22,343 20,311 27,234 176,360 20,259 18,417 14,669 180,456 23,175 21,068 57,781 180,456 9,869 4,937 8,928 377,310 12,638 16,628 50,342 435,465 24,828 19,946 83,608 489,762 17,399 40,978 88,063 481,635 27,166 48,009 110,367 581,733 54,841 51,951 139,455 619,603 49,727 53,735 130,340 633,416 56,885 55,930 169,667 666,114 Balance Sheet Y/E March Share Capital Reserves & Surplus Net Worth Total Loans Deferred Tax Capital Employed Net Fixed Assets Prod. Proper.(net of depletion) Capital WIP Goodwill Investments Curr. Assets, L & Adv. Inventory Debtors Cash & Bank Balance Loans & Adv. and Other CA Current Liab. & Prov. Liabilities Provisions Net Current Assets Application of Funds E: MOSL Estimates 22 January 2015 (INR Million) 12 Cairn India Financials and valuations Ratios Y/E March Basic (INR) EPS Adjusted EPS Cash EPS Book Value Adj. Book Value DPS Payout (incl. Div. Tax.) 2010 2011 2012 2013 2014 2015E 2016E 2017E 5.5 5.5 6.3 178.1 44.9 0.0 0.0 33.3 33.3 39.6 211.9 78.7 0.0 0.0 41.6 48.7 49.2 253.2 120.4 0.0 0.0 63.1 63.1 72.8 249.7 170.2 11.5 21.6 65.2 65.2 77.2 301.1 221.5 12.5 22.5 39.0 39.0 46.6 325.8 244.8 12.5 38.2 22.4 22.4 40.7 333.3 252.3 4.6 24.6 23.1 23.1 42.8 350.9 269.8 4.8 24.6 5.7 4.9 3.5 10.7 0.9 0.0 3.8 3.3 2.2 7.6 1.0 4.8 3.7 3.1 2.0 6.4 0.8 5.2 6.1 5.1 2.9 6.4 0.7 5.2 10.7 5.9 4.1 6.6 0.7 1.9 10.3 5.6 3.0 5.7 0.7 2.0 Valuation (x) P/E Cash P/E EV / EBITDA EV / BOE (in USD, 1P basis) Price / Book Value Dividend Yield (%) Profitability Ratios (%) RoE RoCE 3.2 2.6 17.1 17.9 21.0 20.3 24.8 24.5 23.6 22.9 12.3 12.3 6.8 7.3 6.7 8.4 Turnover Ratios Debtors (No. of Days) Fixed Asset Turnover (x) 52 7.3 32 1.5 41.5 1.8 39.4 2.1 46.7 2.1 50.0 1.5 50.0 1.3 50.0 1.4 Cash Flow Statement Y/E March Profit /(Loss) before Tax Depreciation Other op activities Direct Taxes Paid (Inc)/Dec in Wkg. Capital CF from Op. Activity (Inc)/Dec in FA & CWIP (Pur)/Sale of Investments Interest & dvd received CF from Inv. Activity Change in Equity Inc / (Dec) in Debt Other fin, activities Dividends Paid CF from Fin. Activity Inc / ( Dec) in Cash Add: Opening Balance Closing Balance b/f deposit Bank deposit Closing Balance 22 January 2015 (INR Million) 2010 10,164 1,780 -2,012 -1,753 -7,082 1,097 -33,662 25,194 2,360 -6,108 20 -8,713 -1,760 0 -10,453 -15,464 21,733 6,269 3,025 9,294 2011 68,900 12,226 4,935 -12,592 -10,088 63,381 -25,648 -24,438 903 -49,183 670 -7,348 -2,052 0 -8,730 5,468 6,223 11,691 33,156 44,847 2012 84,235 14,709 -6,915 -21,291 -29 70,710 -29,558 -196 2,449 -27,306 566 -14,419 -1,363 0 -15,216 28,188 11,467 39,656 30,480 70,135 2013 121,548 18,873 -1,448 -22,687 -5,730 110,556 -16,313 -117,506 3,238 -130,581 589 -12,500 -968 -11,098 -23,977 -44,002 44,463 462 55,106 55,568 2014 128,496 23,545 -773 -26,227 -14,113 110,928 -28,733 -55,700 3,142 -81,291 -945 0 -358 -27,939 -29,242 395 463 858 16,762 17,619 2015E 80,834 30,519 4,632 -6,207 -19,474 90,303 -66,482 20,533 2,016 -43,933 -11,055 0 0 -25,701 -36,756 9,614 17,619 27,234 2016E 45,516 34,246 6,690 -3,755 -3,449 79,248 -66,482 0 2,617 -63,865 0 0 0 -27,947 -27,947 -12,564 27,234 14,669 2017E 54,437 36,990 6,167 -11,423 3,785 89,956 -40,482 0 3,954 -36,529 0 0 0 -10,316 -10,316 43,112 14,669 57,781 27,234 14,669 57,781 13 Disclosures This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). 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