Cairn India Net Surges 49%, Oil Realisations Decline

After the robust results posted by two Oil & Gas companies in the last week, expectations were high from Cairn India. Controlled by London based Vedanta Resources and India based Sesa Goa, Cairn India has reported a handsome 38 per cent rise in its top-line to Rs 4277 crore. Its net profit grew by 39.5 per cent to Rs 3156 crore. Excluding the forex gains, its net profit grew by 49 per cent to Rs 2920 crore. Its EBITDA margins however declined by 47 basis points.

Its average daily gross operated production was up by 20 per cent on YoY basis at 2.05 lakh barrels of oil equivalent per day (BOEPD) during the third quarter of the current fiscal. Cairn India's share of production (working interest production) however was up by 29 per cent on YoY basis at 1.28 lakh BOEPD. On sequential basis, however, working interest production was down by 1 per cent.

Although the production is up, oil price realisations have declined by 5 per cent on YoY basis to USD 96.2 per barrel. Company reported 2.27 per cent rise in gas price realisations to USD 4.5 per million standard cubic feet (Mscf).

Operational performance

Rajasthan Block

Rajasthan block located in Barmer has shown a 36 per cent rise in the production of oil. Cairn India's share in total production has also increased by 36 per cent to 1.18 lakh BOEPD.

The company has said that it is progressing well with respect to further exploration in the Barmer Basin and is confident that it will be able to increase the production from the block post the approval.

Krishna Godavari Basin – Revva block 

The Revva block, located in KG basin has reported a 22.80 per cent decline in production to 28.2 thousand BOEPD. Cairn India's working interest production from this block was at 6.3 thousand BOEPD. Oil production declined by 18 per cent while gas production declined by 35.5 per cent. The lower production from this block has been a trend in the last few quarters as the reserves from this block has declined. Reliance too has been reporting decline in the gas production from the blocks located in KG basin.

Western India Block - Cambay Basin

Cambay block has also reported a 14 per cent decline in the production on YoY basis. While oil production declined by 4 per cent in this block, gas production declined by 31.6 per cent on YoY basis.

Overall gas production from the three blocks is down by 35 per cent on YoY basis and 7 per cent on sequential basis. Oil production however is up by 25.53 per cent. This also implies that the results are only bettered by the higher oil production.

EBITDA margins of the company during the quarter have declined by 43 basis points to 76.18 per cent.  For the first time in the last four quarters, the company has reported EBITDA margins below 77 per cent. The major reason behind this was the increased cess by the government. The company, during the quarter, has seen its cess component going up by 140 per cent. Cess, as per cent of sales, has increased to 16.57 per cent from 9.57 per cent a year ago, putting pressure on margins. Its tax and interest costs during the quarter have declined by over 70 per cent each.

Overall, the result is good but the realisations of oil must go up in order to put in a really strong performance. Gas remains a major cause of the concerns due to the decline in the production.

The stock has declined by over 15 per cent in the last one year. With the Oil & Gas sector now seeing investors fancy, we expect shares of Cairn India to appreciate on the bourses going ahead. Investors may enter the stock in a staggered manner.