Cairn India’s December quarter results declared after market hours on Monday saw its consolidated profit grow 48 per cent over the same period last year and 44 per cent sequentially (over the September quarter).

Also, with the recent government nod for further exploration, the company is optimistic of increasing output in its mainstay Rajasthan asset from around 175,000 barrels of oil per day (bopd) currently.

Yet, Cairn India shares lost almost 2.25 per cent on Tuesday.

Excluding forex gains and lower tax, the company’s performance on a sequential quarter basis dipped. This seems to have disappointed the market.

Higher production

Cairn’s robust year-on-year profit growth is attributable to higher production (up 29 per cent thanks to ramp-up in Rajasthan) and a weak rupee (down 6.5 per cent over the year).

This more than offset the 4 per cent lower price realisation in the December quarter.

But compared to September, Cairn suffered on key parameters in the December quarter – output declined 1 per cent, the rupee strengthened 2 per cent and price realisation was down 2 per cent. The company’s ‘profit from operations’ in the December quarter (Rs 2,776 crore) while around 40 per cent higher over the previous year, was around 7 per cent lower than in the September quarter.

‘Profit after tax’ growth on a sequential basis was however achieved, due to forex fluctuation gain of Rs 236 crore in the December quarter compared with a loss of Rs 786 crore in the September quarter.

Besides, lower finance cost, lower tax provision and a positive impact of Rs 189 crore from the scheme of arrangement (Indian businesses of some overseas subsidiaries were transferred to Cairn India) helped.

The sequential operating profit dip notwithstanding, if Cairn is able to increase output in the Rajasthan asset to up to 300,000 bopd gradually over the next few years as expected, there could be scope for the stock to appreciate from current levels.

At Rs 333, it trades at an attractive 5.4 times trailing twelve month earnings.

(This article was published on January 22, 2013)
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