2QFY2012 Result Update | Oil & Gas

October 21, 2011

Cairn India
Performance Highlights
Y/E March (` cr) Net sales EBITDA EBITDA margin (%) Adjusted PAT 2FY2012 2QFY2011 2,652 2,104 79.3 232 2,686 2,202 82.0 1,608 % chg (yoy) 1QFY2012 % chg (qoq) (1.3) (4.5) (265)bp (85.6) 3,713 3,175 85.5 2,727 (28.6) (33.7) (618)bp (91.5)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (Rs) BSE Sensex Nifty Reuters Code Bloomberg Code Oil & Gas 55,006 0.7 372/250 1457391 10 16,786 5,050 CAIL.BO CAIR@IN

`289 -

Source: Company, Angel Research

Cairn Indias (CIL) 2QFY2012 net sales decreased by 1.3% yoy despite a 48.0% yoy increase in crude realization due to royalty payment. The companys adjusted PAT decreased by 85.6% due to one-time royalty adjustment. We maintain our Neutral view on the stock. Royalty dents CILs 2QFY2012 performance: Despite increased crude oil realization by 48.0% yoy to US$102.8/bbl, net sales decreased by 1.3% to `2,652cr due to royalty payment of `770cr. Operating profit decreased by 4.5% yoy to `2,104cr during the quarter. The company provided for previous outstanding royalty on Rajasthan share of `1,355cr. Excluding the exceptional forex gain of `531cr, adjusted net profit declined by 85.6% yoy to `232cr. Timelines uncertain on production growth beyond FY2012: CIL remained optimistic to reach an exit capacity of 175,000bopd by FY2012. However, management opined that due to constraints in pipeline capacity, further meaningful growth in production could be pushed beyond CY2012. Outlook and valuation: We expect production to increase in the coming quarters once CIL receives the required approvals. However, we believe the current stock price discounts this production growth. Nevertheless, there are various exploratory upsides untapped in Barmer Hills and other fields waiting to be developed and commercialized. At current price levels, we remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 52.1 7.7 6.6 33.6

Abs. (%) Sensex Cairn

3m

1yr

3yr 57.1 69.4

(9.0) (17.2) (9.6) (14.3)

Key financials (Consolidated)

Y/E March (` cr) Net sales % chg Net Profits % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 1,623 13.3 1,051 30.8 60.4 5.4 53.5 1.6 3.2 1.7 35.4 58.6

FY2011 10,278 533.3 6,334 502.6 80.2 33.3 8.7 1.4 17.1 17.4 5.2 6.4

FY2012E 11,487 11.8 6,072 -4.1 74.2 31.9 9.1 1.2 14.0 16.5 4.3 5.9

FY2013E 13,630 18.7 7,708 26.9 77.7 40.5 7.1 1.0 15.3 18.6 3.2 4.1

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

Please refer to important disclosures at the end of this report

Cairn India | 2QFY2012 Result Update

Exhibit 1: 2QFY2012 performance

Y/E March (` cr) Net sales Operating expenditure Other expenditure EBITDA EBITDA Margin (%) Other Income DD&A Exploration costs w/o Interest Forex fluctuation PBT PBT Margin (%) Total Tax % of PBT Exceptional items (Royalty) PAT Minority interest Adj. PAT PAT Margin (%)
Source: Company, Angel Research

2QFY2012 1QFY2011 % chg (yoy) 1QFY2012 % chg (qoq) 2,652 471 77 2,104 79.3 62 314 39 123 (531) 2,221 83.7 103 4.6 1,355 763 232 8.7 1,608 65.4 (85.6) 2,686 426 58 2,202 82.0 276 42 128 24 1,733 64.5 148 0.0 1,585 (51.9) 30.5 28.2 (4.1) 14.0 (1.3) 10.6 32.5 (4.5) 3,713 426 112 3,175 85.5 53 346 19 45 1 2,817 75.9 91 3.2 2,727 2,727 73.4 (91.5) (72.0) 13.2 (21.2) 17.4 (9.2) 107.6 175.4 (28.6) 10.6 (31.0) (33.7)

Exhibit 2: 2QFY2012 Actual vs. Estimates

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

Actual 2,652 2,104 79.3 232

Estimates 3,590 2,477 69.0 214

Variation (%) (26.1) (15.1) 1033bp 8.4

Payment of royalty affects sales growth: CILs top line decreased by 1.3% yoy to `2,652cr. Crude oil realization increased by 48.0% yoy to US$102.8/bbl. Despite a 48.0% yoy increase in realization, net sales decreased by 1.3% due to royalty burden of `770cr, which the company did not have to pay during 2QFY2011. Gross production from Mangala field averaged 125,251bopd during the quarter.

October 21, 2011

Cairn India | 2QFY2012 Result Update

Exhibit 3: Net sales growth trend

4,000 3,500 3,000 2,500 1,069.1 1,200 1,000 800 525.0 427.5 341.7

(` cr)

1,500 1,000 500 -

400 (1.3) 200 0 -200

281.2

310.1

4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12

Net sales Net sales growth (RHS)

Source: Company, Angel Research

OPM expands by 265bp yoy: Other expenditure increased by 32.5% yoy to `77cr
in 2QFY2012. Hence, OPM contracted by 265bp yoy to 79.3%, resulting in a 4.5% yoy decline in operating profit to `2,104cr during the quarter.

Exhibit 4: Operating performance trend

3,500 3,000 2,500 77.0 80.9 82.8 85.9 85.5 79.3 90 80

(` cr)

2,000 1,500 1,000 500 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12
Operating Profit Operating Margins (RHS)

60 53.1 50 40

Source: Company, Angel Research

PAT decreases by 85.6% yoy due to one-time royalty adjustment: CIL provided for previous outstanding royalty on Rajasthan share of `1,355cr. The company recorded an exceptional gain of `531cr on account of forex fluctuation during 2QFY2012. Excluding this exceptional gain, adjusted net profit declined by 85.6% yoy to `232cr (slightly above our estimate of `214cr).

October 21, 2011

(%)

70

(%)

2,000

600

Cairn India | 2QFY2012 Result Update

Exhibit 5: PAT growth trend

3,200 2,800 2,400 2,000 1,212.6 902.4 590.9 237.7 (85.6) 868.9 1,400.0 1,200.0 1,000.0 800.0 519.3 600.0 400.0 200.0 (200.0) 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12
Adjusted PAT PAT growth (RHS)

(` cr)

1,600 1,200 800 400 -

Source: Company, Angel Research

Timelines uncertain on production growth beyond FY2012: CIL informed that Bhagyam block development is on track and ready to commence production in 3QFY2012, subject to government approvals. Also, the company is optimistic to reach an exit capacity of 175,000bopd by FY2012. However, management opined that due to constraints in pipeline capacity, further meaningful growth in production could be pushed beyond CY2012.

October 21, 2011

(%)

Cairn India | 2QFY2012 Result Update

Investment arguments
Producing fields priced in; exploratory upsides awaited: CILs management remained optimistic to reach an exit crude oil producing capacity of 175,000bopd by FY2012. However, management opined that due to constraints in pipeline capacity, ramp-up beyond 175,000 could be pushed to FY2014. MBA fields seem to be priced in the valuation as their reserve potential is known since CILs public issue. Nevertheless, there are various exploratory upsides untapped 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. Further, operational visibilities in such fields could trigger the valuations upwards.

Outlook and valuation

We expect production to increase in the coming quarters once CIL receives the required approvals. However, we believe the current stock price discounts this production growth. However, there are various exploratory upsides untapped in Barmer Hills and other fields waiting to be developed and commercialized. Further, operational visibilities and major finds in these fields could trigger our valuation upwards. We remain Neutral on the stock with an SOTP fair value of `285.

Exhibit 6: SOTP valuation (FY2013E)

Particulars (` cr) MBA (DCF) Ravva & 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 204 9 11 36 259 (25) 285

Exhibit 7: Key operating assumptions

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

FY2012E 149,258 3.0

FY2013E 169,258 3.1

Exhibit 8: Angel EPS forecast vs. consensus

Angel Forecast FY2012E FY2013E
Source: Company, Angel Research

Bloomberg Consensus
40.7 45.6

Variation (%)
(21.6) (11.2)

31.9 40.5

October 21, 2011

Cairn India | 2QFY2012 Result Update

Exhibit 9: Recommendation summary

Company RIL ONGC CIL GAIL CMP (`) 835 265 289 418 TP (`) 1,060 337 508 Buy Buy Neutral Buy Reco. Mcap (` cr) 273,529 227,062 55,006 53,028 Upside (%) 27 27 22 P/E (x) FY12E 11.9 8.3 9.1 13.0 FY13E 10.7 7.7 7.1 11.7 P/BV (x) FY12E 1.4 1.7 1.2 2.4 FY13E 1.3 1.5 1.0 2.0 EV/EBITDA (x) FY12E 6.3 3.6 5.9 7.4 FY13E 5.7 3.1 4.1 6.5 RoE (%) FY12E 14.0 21.9 14.0 19.6 FY13E 13.8 20.4 15.3 18.7 RoCE (%) FY12E 11.6 21.0 16.5 22.3 FY13E 12.2 19.9 18.6 21.7

Source: Angel Research

October 21, 2011

Cairn India | 2QFY2012 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 associate Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 1,433 1,433 1,433 41.5 523 910 36.4 63.5 438 472 126.4 32.9 6 507 52.2 972 187.7 (16) 988 184 18.7 803 803 788 (433.1) 55.0 4.1 4.1 (422.4) 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 10,278 10,278 10,278 533.3 2,033 8,245 740.9 80.2 1,193 7,052 1031.1 68.6 291 129 1.9 6,890 577.9 6,890 556 8.1 6,334 6,334 6,334 502.6 61.6 32.4 32.4 498.3 FY2012E FY2013E 11,487 11,487 11,487 11.8 2,968 8,519 3.3 74.2 1,046 7,473 6.0 65.1 355 462 6.1 7,580 10.0 7,580 1,508 19.9 6,072 6,072 6,072 (4.1) 52.9 31.9 31.9 (4.1) 13,630 13,630 13,630 18.7 3,035 10,594 24.4 77.7 1,140 9,454 26.5 69.4 305 462 4.8 9,612 26.8 9,612 1,905 19.8 7,708 7,708 7,708 26.9 56.6 40.5 40.5 26.9

October 21, 2011

Cairn India | 2QFY2012 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 Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash and Deposits Loans & Advances Other Current liabilities Net Current Assets Total Assets 445 80 365 6,203 25,319 171 7,268 6,527 351 390 1,613 5,655 37,713 722 96 626 9,163 25,319 1,712 2,373 929 832 612 1,481 893 37,714 6,654 730 5,924 6,067 25,319 1,094 7,961 4,485 1,656 1,849 2,927 5,034 43,533 9,354 1,777 7,577 5,067 25,319 1,094 10,252 5,069 2,235 2,948 2,478 7,774 46,926 11,874 2,917 8,957 4,067 25,319 1,094 17,684 11,740 2,235 3,709 2,582 15,102 54,634 1,936 30,867 32,802 4,356 554 37,713 1,943 31,925 33,868 3,401 445 37,714 1,902 38,336 40,293 2,678 561 43,533 1,902 44,408 46,365 561 46,926 1,902 52,115 54,073 561 54,634 FY2009 FY2010 FY2011 FY2012E FY2013E

Cash Flow Statement (Consolidated)

Y/E March (` cr)

FY2009 988 295 121 (516) (146) 293 1,036 (3,161) (2,506) 152 (5,516) 2,552 3,746 (72) 6,226 1,746 150 1,897

FY2010 1,016 178 (708) (435) (175) 234 110 (3,366) 2,519 236 (611) 2 (880) (168) (1,045) (1,546) 1,897 637

FY2011 6,890 1,223 (1,009) (129) (1,259) (615) 6,331 (2,565) 624 (2,934) (4,875) 67 (733) (199) (866) 590 637 1,227

FY2012E 7,580 1,046 1,330 (462) (1,508) 1,127 9,113 (2,700) 462 (2,238) (2,678) (355) (3,033) 3,842 1,227 5,069

FY2013E 9,612 1,140 344 (462) (1,905) 305 9,033 (2,520) 462 (2,058) (305) (305) 6,671 5,069 11,740

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 Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Interest Paid (Incl. Tax) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances

October 21, 2011

Cairn India | 2QFY2012 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) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Interest) (0.1) (2.4) 73.6 0.1 2.5 21.1 (0.0) (0.2) 24.2 (0.1) (0.6) 21.0 (0.2) (1.1) 31.0 0.7 36.9 36.5 575.4 0.7 51.6 51.5 615.3 0.7 11.0 31.8 202.0 9.1 0.4 25.2 48.6 122.7 51.7 0.3 36.9 46.1 89.0 81.2 1.4 1.8 2.6 1.7 2.4 3.2 17.4 23.3 17.1 16.5 21.4 14.0 18.6 25.0 15.3 4.1 4.1 6.4 172.5 5.4 5.4 7.4 178.1 33.3 33.3 39.6 211.9 31.9 31.9 37.4 243.8 40.5 40.5 46.5 284.3 71.0 44.8 1.7 0.0 36.9 58.1 1.4 53.5 39.0 1.6 0.0 35.4 58.6 1.5 8.7 7.3 1.4 0.0 5.2 6.4 1.2 9.1 7.7 1.2 0.0 4.3 5.9 1.1 7.1 6.2 1.0 0.0 3.2 4.1 0.8 FY2009 FY2010 FY2011 FY2012E FY2013E

(121.1) (102.2)

October 21, 2011

Cairn India | 2QFY2012 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 21, 2011

10