Merrill Lynch maintains 'buy’on Cairn India
Merrill Lynch maintains `Buy’ rating on Cairn India (CIL) with a target price of Rs 219. CIL recently revised guidance on development cost and production ramp up from its main Rajasthan block RJ-0N-90/1.
RESEARCH: MERRILL LYNCH
RATING: BUY
CMP: Rs 176
Merrill Lynch maintains `Buy��� rating on Cairn India (CIL) with a target price of Rs 219. CIL recently revised guidance on development cost and production ramp up from its main Rajasthan block RJ-0N-90/1. It led Merrill Lynch to upgrade Rajasthan development cost and peak production rate. However, the ramp up to peak rate is now slower than earlier assumed.
Gains from higher production rate are largely neutralised by the slower ramp up. CIL now plans a production facility with a 205 kb/d capacity. There are several other indications suggesting peak production rate would be higher than the earlier guidance of 175 kb/d. Oil production is to start in 3Q09E as against 2H09E earlier. However production ramp up is likely to be slower than earlier assumed.
FY11E Rajasthan oil output is therefore 26% lower than that assumed for ���10E. FY12E output is also lower than ���11E by 5%. ���10E is to be the first full year of Rajasthan production. EPS of first full year now FY11E is therefore 28% lower than that of ���10E, the first full year earlier. Merrill Lynch expects CIL���s FY11E profit at $1.2bn (���10E estimate was $1.6bn). FY12E EPS would be higher than ���11E EPS despite lower output. The higher profit is due to lower share of government in profit petroleum in FY12E than in ���11E.
RATING: BUY
CMP: Rs 176
Merrill Lynch maintains `Buy��� rating on Cairn India (CIL) with a target price of Rs 219. CIL recently revised guidance on development cost and production ramp up from its main Rajasthan block RJ-0N-90/1. It led Merrill Lynch to upgrade Rajasthan development cost and peak production rate. However, the ramp up to peak rate is now slower than earlier assumed.
Gains from higher production rate are largely neutralised by the slower ramp up. CIL now plans a production facility with a 205 kb/d capacity. There are several other indications suggesting peak production rate would be higher than the earlier guidance of 175 kb/d. Oil production is to start in 3Q09E as against 2H09E earlier. However production ramp up is likely to be slower than earlier assumed.
FY11E Rajasthan oil output is therefore 26% lower than that assumed for ���10E. FY12E output is also lower than ���11E by 5%. ���10E is to be the first full year of Rajasthan production. EPS of first full year now FY11E is therefore 28% lower than that of ���10E, the first full year earlier. Merrill Lynch expects CIL���s FY11E profit at $1.2bn (���10E estimate was $1.6bn). FY12E EPS would be higher than ���11E EPS despite lower output. The higher profit is due to lower share of government in profit petroleum in FY12E than in ���11E.
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