Cairn India - Reserve Upgrade Surprises

BSE Index Analysis, Securties , Standard Experts

Cairn has increased its Rajasthan gross resource estimate to 7.3 bn bl (6.5 bn bl earlier) and risked prospective resources to 530 mn bl from 250 mn bl. This has resulted in ultimate recovery increasing to 1.7 bn bl from 1.4 bn bl and can support production of 300 kbpd, subject to regulatory approvals. Maintain HOLD rating with target price of Rs 380 (Rs 355 earlier) to factor in reserve upgrade.

Higher visibility on production; higher capex likely

Cairn reported adjusted PAT of Rs 25 bn, up 14% QoQ-- in line with our estimates. We have revised FY13 EPS by 5% to factor in higher output of 185 kbpd (175 kbpd earlier) on the back of Mangala approval.

Reserve upgrade can support production of 300 kbpd, subject to approvals. Management has guided for gross capex of US$ 1-1.25 bn each in FY13 and FY14. We expect FY13 and FY14 exit production rate of 190 kbpd and 240 kbpd respectively and peak rate of 300 kbpd by mid-FY16.