2QFY2013 Result Update | Oil & Gas

October 22, 2012

Cairn India
Performance Highlights
Quarterly highlights (Consolidated)
Y/E March (` cr) Net sales EBITDA EBITDA margin (%) Adjusted PAT 2QFY2013 2QFY2012 % chg (yoy) 1QFY2013 % chg (qoq) 4,443 3,452 77.7 3,108 2,652 2,104 79.3 232 67.5 64.0 (165)bp 1,240 4,440 3,492 78.7 2,960 0.1 (1.2) (97)bp 5.0

ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 64,504 (7,014) 0.9 401/285 758,135 10 18,793 5,717 CAIR.BO CAIR@IN

`338 `382
12 Months

Source: Company, Angel Research

For 2QFY2013, Cairn India (CIL) reported strong operating performance due to higher sales volumes and rupee depreciation. We maintain our Accumulate rating on the stock.

Higher volumes and rupee depreciation drive CILs top-line growth: CILs
top-line increased by a strong 67.5% yoy to `4,443cr (in line with our expectation of `4,418cr) led by higher crude oil sales volumes and rupee depreciation. During the quarter, CILs working interest production volumes stood at 129,431boepd vs 99,220boepd in 2QFY2012 and 127,226boepd in 1QFY2013. Although the gross crude oil realization decreased by 4.6% yoy and 2.9% qoq to US$98.1/bbl, the realization in rupee terms was higher yoy due to INR depreciation against the USD in 2QFY2013 compared to 2QFY2012. Forex loss drags reported PAT: The operating margin contracted by 165bp yoy to 77.7% due to increase in cess and profit petroleum. Its operating profit grew by 64.0% yoy to `3,452cr. The company recorded an exceptional loss of `786cr on account of forex fluctuation during 2QFY2013. Excluding this exceptional loss, the adjusted net profit grew by 1,239.7% yoy to `3,108cr (above our estimate of `2,807cr). The reported net profit grew by 204.3% yoy to `2,322cr. Outlook and valuation: CIL has the infrastructure in place to ramp up production to meet its targets. Hence, we expect production to gradually increase in the coming quarters to reach a capacity of 205kbopd by FY2014. Further, there are various untapped exploratory upsides in Barmer Hills and other fields waiting to be developed. Hence, we recommend an Accumulate rating on the stock with a SOTP-based target price of `382.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 58.8 9.0 16.3 16.0

Abs. (%) Sensex Cairn India

3m 9.5 3.3

1yr 12.0 16.8

3yr 11.8 18.5

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

FY2011 10,278 533.3 6,334 502.6 80.3 33.3 10.1 1.6 17.1 17.1 6.1 7.6

FY2012 11,861 15.4 7,938 25.3 78.0 42.2 8.0 1.3 17.9 16.3 4.8 6.2

FY2013E 17,567 48.1 11,652 46.8 76.2 61.1 5.5 1.1 21.5 21.0 2.7 3.5

FY2014E 17,643 0.4 10,837 (7.0) 72.3 56.8 5.9 0.9 16.6 16.2 2.2 3.0

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

Vinay Rachh
Tel: 022- 39357800 Ext: 6841 Vinay.rachh@angelbroking.com

Please refer to important disclosures at the end of this report

Cairn India | 2QFY2013 Result Update

Exhibit 1: 2QFY2013 financial performance

(` Cr.) Net Operating Income operating expenditure EBITDA EBITDA Margin (%) Other Income Interest Forex gain/(loss) PBT PBT Margin (%) Total Tax % of PBT PAT Minority interest Adj. PAT PAT Margin (%)
Source: Company, Angel Research

2QFY2013 4,443 991 3,452 77.7 223 19 (786) 2,392 53.8 70 2.9 2,322 3,108 70.0

2QFY2012 % chg (yoy) 2,652 548 2,104 79.3 62 123 (531) 866 32.6 103 11.9 763 232 8.7 204.3 1239.7 (32.3) 176.2 259.2 (84.7) 67.5 80.9 64.0

1QFY2013 % chg (qoq) 4,440 948 3,492 78.7 96 29 866 3,953 89.0 127 3.2 3,826 2,960 66.7 (39.3) 5.0 (45.2) (39.5) 130.8 (36.0) 0.1 4.6 (1.2)

1HFY13 7,095 1,540 5,556 78.3 285 142 (1,317) 3,258 45.9 173 5.3 3,085 3,340 47.1

1HFY12 % chg (yoy) 8,153 1,373 6,667 81.8 149 74 867 6,771 83.0 218 3.2 6,553 5,686 69.7 (41.3) (52.9) (20.8) (51.9) 90.7 91.4 (13.0) 12.1 (16.7)

Exhibit 2: 2QFY2013 Actual vs Estimates

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

Actual 4,443 3,452 77.7 3,108

Estimates 4,418 3,495 79.1 2,807

Variation (%) 0.6 (1.2) (142)bp 10.7

Higher volumes and rupee depreciation drive CILs top-line growth: CILs topline increased by a robust 67.5% yoy to `4,443cr (in line with our expectation of `4,418cr) led by higher crude oil sales volumes and rupee depreciation. During the quarter, CILs working interest production volumes stood at 129,431boepd vs 99,220boepd in 2QFY2012 and 127,226boepd in 1QFY2013. Although gross crude oil realization decreased by 4.6% yoy and 2.9% qoq to US$98.1/bbl, the realization in rupee terms was higher yoy due to depreciation of rupee in 2QFY2013 as compared to 2QFY2012.

October 22, 2012

Cairn India | 2QFY2013 Result Update

Exhibit 3: Net sales increased by 67.5% yoy

5,000 4,500 4,000 3,500 3,000 427.5 3,654 3,713 341.7 2,652 3,097 3,651 4,440 4,443 450 400 350 300 250 150 67.5 (1.3) 0.0 19.6 (0.1) 100 50 0 -50

(` cr)

2,000 1,500 1,000 500 Net sales

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Net sales growth (RHS)

Source: Company, Angel Research

Operating margin contracts by 165bp yoy: The operating margin contracted by 165bp yoy to 77.7% due to increase in cess and profit petroleum. Its operating profit grew by 64.0% yoy to `3,452cr.

Exhibit 4: Operating margin stood at 77.7%

4,000 3,500 3,000 2,500 85.9 90 82.2 79.3 81.6 78.7 77.7 80 70 60 50 40 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Operating profit Operating margin (RHS)
Source: Company, Angel Research

85.5

(` cr)

2,000 1,500 1,000 500 -

Forex loss drags reported PAT: The company recorded an exceptional loss of `786cr on account of forex fluctuation during 2QFY2013. Excluding this exceptional loss, the adjusted net profit grew by 1,239.7% yoy to `3,108cr (above our estimate of `2,807cr). The reported net profit grew by 204.3% yoy to `2,322cr.

October 22, 2012

(%)

(%)

2,500

200

Cairn India | 2QFY2013 Result Update

Exhibit 5: Adjusted PAT stood at `3,108cr

3,600 3,200 2,800 2,400 2,000 1,600 1,200 800 400 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Adjusted PAT PAT growth (RHS)
Source: Company, Angel Research

2,515

2,727 2,403 1,960

2,960

3,108

1,400 1,200 1,000 800 600 400 200

(` cr)

232

0 (200)

Investment arguments
CIL aims to increase production to 240kbopd by CY2013
CIL commenced production from Bhagyam oil field during 4QFY2012 and produced 25kbopd during 1QFY2013. It aims to gradually increase its capacity at Bhagyam to 40kbopd. CIL also aims to reach its total exit capacity of 240kbopd by CY2013-end.

Exploratory upsides awaited

There are various untapped exploratory upsides 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 had recently announced two discoveries in Mannar Basin, Sri Lanka.

Outlook and valuation

CIL has the infrastructure in place to ramp up production to meet its targets. Hence, we expect production to gradually increase in the coming quarters to reach a capacity of 205kbopd by FY2014. Further, there are various untapped exploratory upsides in Barmer Hills and other fields waiting to be developed. Hence, we recommend our accumulate rating on the stock with a target price of `382.

October 22, 2012

(%)

Cairn India | 2QFY2013 Result Update

Exhibit 6: SOTP valuation (FY2014E)

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 304 9 11 46 370 (12) 382

Exhibit 7: Key operating assumptions

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

FY2013E 175 2.8

FY2014E 205 2.8

Exhibit 8: Angel EPS forecast vs consensus

Angel Forecast FY2013E FY2014E
Source: Company, Angel Research

Bloomberg Consensus

Variation (%) 11.4 11.7

61.1 56.8

54.84 50.87

Exhibit 9: Recommendation summary

Company RIL ONGC CIL GAIL CMP (`) 815 278 338 359 TP (`) Reco. Mcap (` cr) Upside 12 13 P/E (x) 13.7 9.1 5.5 10.7 13.0 8.7 5.9 10.4 P/BV (x) 1.3 1.5 1.1 1.9 1.2 1.4 1.0 1.7 EV/EBITDA (x) 8.6 4.0 3.7 5.5 7.9 3.7 3.3 4.6 RoE (%) 11.0 18.3 22.0 18.9 10.6 17.2 17.5 17.0 RoCE (%) 7.4 19.3 21.4 23.5 7.7 18.4 17.1 20.7 (%) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E

- Neutral 261,155 312 Accum. 236,987 382 Accum. - Neutral 64,504 45,259

Source: Angel Research

Company background:
Cairn India is an oil and gas exploration and production companies in India with interests in 11 blocks. The company estimates its Rajasthan block potential resource at ~6.5bboe with resource in Mangala, Bhagyam, Aishwarya (MBA) and other fields at ~4.0bboe. MBA fields hold resource of 2.1bboe, of which 2P reserves are over 1.0bboe. The company operates the largest oil-producing field in the Indian private sector. The company has pioneered the use of cutting-edge technology in India to extend production life. Cairn India is working closely alongside the central and state governments and has operational partnership with ONGC, Videocon, Tata, Marubeni and ENI. During FY2012, Vedanta acquired a majority stake (59%) in Cairn India.

October 22, 2012

Cairn India | 2QFY2013 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) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2010 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 1,051 33.4 64.8 5.4 5.4 32.9 FY2011 10,278 10,278 10,278 533.3 2,024 8,254 741.8 80.3 1,193 7,061 1032.6 68.7 300 129 1.9 6,890 577.9 6,890 556 8.1 6,334 6,334 6,334 502.6 61.6 33.3 33.3 515.8 FY2012 11,861 11,861 11,861 15.4 2,606 9,254 12.1 78.0 1,440 7,814 10.7 65.9 226 938 11.0 8,526 23.8 (103) 8,629 691 8.0 7,938 7,938 8,041 26.9 67.8 42.2 42.2 26.6 FY2013E 17,567 17,567 17,567 48.1 4,183 13,385 44.6 76.2 1,484 11,901 52.3 67.7 131 664 5.3 12,434 45.8 12,434 782 6.3 11,652 11,652 11,652 44.9 66.3 61.1 61.1 44.9 FY2014E 17,643 17,643 17,643 0.4 4,881 12,763 (4.6) 72.3 1,750 11,013 (7.5) 62.4 109 667 5.8 11,571 (6.9) 11,571 734 6.3 10,837 10,837 10,837 (7.0) 61.4 56.8 56.8 (7.0)

October 22, 2012

Cairn India | 2QFY2013 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 Long Term Provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Cost of Producing facility Goodwill Deferred Tax Assets Long Term Loans and Adv. Other Non Current Assets Investments Current Assets Cash & Deposits Loans & Advances Other Inventories Debtors Others Current liabilities Creditors Provisions Net Current Assets Mis. Exp. not written off Total Assets 722 96 626 9,163 25,319 1,712 2,373 929 832 612 291 307 14 1,481 987 494 893 37,714 6,670 747 5,924 3,982 2,085 25,319 14 1,255 349 1,094 6,501 4,427 422 1,652 90 1,483 79 1,610 1,314 296 4,891 44,913 7,363 1,434 5,929 4,500 3,021 25,319 10 2,538 691 1,836 9,610 7,014 838 1,758 137 1,497 125 2,603 2,483 121 7,007 50,850 12,383 2,918 9,465 3,500 3,021 25,319 10 2,538 691 1,836 16,090 12,845 838 2,531 481 1,925 125 2,298 2,177 121 13,792 60,171 17,383 4,668 12,715 2,000 3,021 25,319 10 2,538 691 1,836 23,373 20,117 838 2,541 483 1,934 125 2,661 2,541 121 20,711 68,841 1,943 31,925 33,868 3,401 445 37,714 1,902 38,391 40,293 2,674 575 1,371 44,913 1,907 46,385 48,292 684 1,874 50,850 1,907 55,706 57,669 684 1,818 60,171 1,907 64,376 66,339 684 1,818 68,841 FY2010 FY2011 FY2012 FY2013E FY2014E

October 22, 2012

Cairn India | 2QFY2013 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr) 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) Payment of dividend Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (175) 234 545 (3,366) 2,529 236 (601) 2 (880) (168) (1,045) (1,102) 2,413 637 FY2010 1,016 178 (708) FY2011 6,900 1,223 (1,009) (123) (1,259) 606 6,338 (2,565) (3,771) 90 1,326.9 (4,918) 67 (743) (197) (873) 547 622 1,147 FY2012 8,423 1,471 (274) (222) (2,129) (198) 7,071 (2,956) (9,147) 245 9,127 (2,731) 59 (1,448) (132) (1,522) 2,819 1,147 4,446 FY2013E 12,434 1,484 (954) (664) (782) 11,518 (4,020) 664 (3,356) (2,330) (2,330) 5,831 4,446 12,845 FY2014E 11,571 1,750 353 (667) (734) 12,273 (3,500) 667 (2,833) (2,167) (2,167) 7,272 12,845 20,117

October 22, 2012

Cairn India | 2QFY2013 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/Int.) 0.1 2.5 21.1 (0.0) (0.2) 23.5 (0.1) (0.8) 34.6 (0.3) (1.1) 91.2 (0.3) (1.7) 101.3 0.7 52 52 615 (102) 0.7 7 32 208 8 0.4 3 46 266 7 0.4 6 36 203 10 0.3 10 40 176 16 1.7 2.4 3.2 17.1 22.0 17.1 16.3 20.6 17.9 21.4 103.5 22.0 17.1 (57.3) 17.5 5.4 5.4 7.4 178.1 33.3 33.3 39.5 211.9 42.2 42.2 49.7 253.9 61.1 61.1 68.9 303.2 56.8 56.8 66.0 348.8 62.5 45.8 1.9 0.0 41.1 68.1 1.8 10.1 8.6 1.6 0.0 6.1 7.6 1.4 8.0 6.8 1.3 0.0 4.8 6.2 1.1 5.5 4.9 1.1 0.0 2.8 3.7 0.8 5.9 5.1 1.0 0.0 2.4 3.3 0.6 FY2010 FY2011 FY2012 FY2013E FY2014E

October 22, 2012

Cairn India | 2QFY2013 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

October 22, 2012

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