Cairn India IC

Institutional Research
Cairn India Ltd.

Riding the Oil Wave
Durgesh Poyekar
+91 22 663 99143
VIOLET ARCH Securities Pvt. Ltd. (Erstwhile Alchemy Share & Stock Brokers Pvt. Ltd.)
durgesh.poyekar@violetarch.com
VIOLET ARCH Research
Index
Executive Summary
3-18
First Page ................................................................................................ 3

Scenario Analysis .................................................................................... 4
Key Assumptions ................................................................................. 4-5
Sensitivity Analysis ................................................................................. 7
SWOT Analysis ........................................................................................ 8
Investment Arguments ...................................................................... 9-12
Key Risks & Concerns ...................................................................... 13-15
Valuations............................................................................................. 16
Peer Comparison .................................................................................. 18
Investment Argument
19-25
Resource-rich Rajasthan fields ............................................................. 19

Rajasthan Block production.................................................................. 21
MBA Field production rates ................................................................. 22
Peak rate calculation ............................................................................ 22
MBA production schedule over FY13-14 .............................................. 22
EOR to extend plateau production ....................................................... 23
Cairn only pure play on crude in Indian E&P space .............................. 25
Infrastructure being augmented .......................................................... 26
Successful management track record .................................................. 27
Robust cash-flow .................................................................................. 28
CILs exploration assets ........................................................................ 29
Key risk and concerns
30-33
Financials and Valuation
34-36
Company Overview
37
Financial Summary
38
Cairn India Ltd - Company Report
COMPANY REPORT
Equity Research l Oil & gas

April 1, 2013
Cairn India Ltd.

Riding the Oil Wave
We initiate coverage on Cairn India Ltd. (CIL) with a BUY rating. CIL is one of the best stock
plays in India to have direct exposure to global crude prices. With its world-class Rajasthan
Block already under production, the company has joined the big league of players in Indias
E&P space. Rajasthan Blocks Gross Hydrocarbons Initially In Place (GHIIP) is 7.3bnboe, of
which estimated recoverable reserves stand at 1.7bnboe. In two year, production from
Rajasthan Block is expected to reach 210,000bopd from the current 175,000bopd, which
will contribute around 30% of Indias domestic crude production. With world-class oil
production assets, exciting E&P prospects and highly competent management, coupled
with high crude prices, CIL stock is an attractive investment option.
Investment Argument
BUY
Rs 367
Absolute Rating
Target Price
Upside
31%
Stock data
CMP
Rs 280
Reuters Code
CAIL.BO
Bloomberg Code
CAIR IN
Equity Shares o/s (mn)
1,908
Market Cap (Rs mn)
534,160
Market Cap (USD mn)
9,891
Resource-rich Rajasthan fields

CILs GHIIP in Rajasthan Block stands at 7.3bnboe, with the expected ultimate recovery of
about 1.7bnboe. MBARS fields in Rajasthan Block have reserves of around 2.1bnboe, of
which 2P reserves are estimated at 1.0bnboe, representing a recovery factor of 48%.
Additionally, CIL has estimated recoverable resources of around 165mmboe from the
Barmer Hill formation and other discoveries and another 530mmboe from the exploration
upside. With the approval from government for resume exploration activities in Rajasthan
block (after a gap of four years), Cairn has already embarked upon a 3-year exploration
programme to drill over 100 exploratory/appraisal wells.
Stock performance (%)

52-week high / low
Rs 366/283
1M
3M
12M
Absolute
(10.6)
(13.9)
(20.2)
Relative
(8.1)
(11.4)
(28.0)
Rajasthan Block production to rise by 22% by end of FY15

CIL is poised to achieve production of 210,000bopd from Rajasthan Block from the current
175,000bopd on the back of sustained production of 150,000bopd from Mangala alongwith EOR implementation, ramp-up of Bhagyam to 40,000bopd and peak output of
20,000bopd from Aishwarya. A strong output ramp-up, along with high crude prices, will
ensure healthy growth in cash-flow to the company.
Shareholding pattern (%)

DII, 10
Strong cash-flow to sustain further exploration and development plans
FII, 15
Going forward, production from MBA fields will generate USD12bn during FY13-20, which
will be sufficient to fund further development plans in Rajasthan, including Barmer Hill,
smaller satellite fields and further exploration upsides of ~530mmbbl. Any positive news
flow from exploration will be next trigger for the stock. Considering the significant amount
of cash that CIL will generate going forward, funding the exploration programme which can
result in reserve upgrades would not be a problem.
Promoter, 59
Public &
others, 16
Valuation
Relative stock movement
120
115
110
105
100
95
90
85
Cairn India Ltd
Sensex
Source: Company, Violet Arch Research
Mar-13
Jan-13
Feb-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
Apr-12
May-12
80
Mar-12
At the CMP of Rs 280, the stock trades at P/E, EV/EBITDA and P/BV of 5.4x, 2.6x and 0.8x,
respectively, on FY14E estimates of EPS, EBITDA and BV. Since the production has begun
from MBA fields, the stock has averaged at 7.8x one-year forward earnings. We value MBA
fields on a NAV basis and other recoverable reserves on an EV/boe basis to arrive at a
target price of Rs 367, which reflects an EV/boe of $9.3/bbl. We initiate coverage on Cairn
India Ltd. (CIL) with a BUY rating.
Particulars
FY12
FY13E
FY14E
FY15E
Revenue (Rs bn)
118.6
176.0
170.4
150.1
Growth (Y-o-Y)
15.4
48.4
-3.2
-11.9
EBIDTA (Rs bn)
91.5
131.8
122.1
96.7
EBIDTA margins
77.2
62.5
58.9
53.0
PAT (Rs bn)
79.4
115.1
99.4
73.1
PAT margins
66.9
54.6
47.9
40.1
EPS
41.6
60.4
52.1
38.3
P/E (x)
6.7
4.6
5.4
7.3
EV/EBIDTA (x)
5.2
2.8
2.6
2.8
Scenario Analysis
FY13E
Peak Bhagyam rate (bopd)
Peak Bhagyam rate achieved in
Peak Aishwarya rate (bopd)
Peak Aishwarya rate achieved in
FY14 brent price (USD/bbl)
FY15 brent price (USD/bbl)
Long-term brent price
Discount to Brent Crude
Exchange rate in FY14(Rs/$)
Exchange rate in FY15 (Rs/$)
LT Exchange rate (Rs/$)
Cess (Rs/tonne) increases in FY18
WACC
FY14 EPS
Inc/dec from base case
FY14 EBITDA (Rs bn)
DCF based target price
CMP
Potential upside
Bear Case
Base Case
Bull Case
40000
40000
50000
Q4FY14
Q4FY14
Q1FY15
10000
20000
20000
Q2FY14
Q2FY15
Q2FY15
105
110
115
95
85
12%
53
51
49
6500
10.0%
49.1
-5.7%
115.1
-5.7%
346
-5.6%
280
22.6%
90
90
12.0%
53
51
49
6500
10.0%
52.1
105
95
12%
53
51
49
Nil
10.0%
55.1
5.7%
129.0
5.7%
409
12.5%
280
46.1%
122.1
367
280
29.9%
Source: Violet Arch Research
Key assumptions
Base case
The CIL management has guided exit rate of 200,000bopd to 215,000bopd from Rajasthan
block at end of FY14, which will largely be coming from MBA fields. In our base case, we
have taken a conservative stance and assumed exit rate of 195,000bopd by end of FY14
with Mangala, Bhagyam and Aishwarya producing 145,000bopd, 40,000bopd and
10,000bopd respectively by end of FY14. We assume peak rate of 150,000bopd,
40,000bopd and 20,000bopd for Mangala, Bhagyam and Aishwarya respectively.
We have assumed the Brent price of $110/bbl in FY14 in the base case as the geo-political
issues between Iran and US/Israel and strife in Syria will continue to put upward pressure
on price. However, we assume price to trend lower in FY15 at $100/bbl and $90/bbl
beyond that.
Capex of USD 2.0bn over FY14 and FY15 with 60% to be spent on Rajasthan block (30% on
exploration and 30% on development) and remaining 40% to be spent on other assets and
new ventures.
Direct field opex of $3.5/bbl and pipeline opex of $1.5/bbl.
DDA expenses at $9/bbl.
Royalty of 15.5% on revenues.
Cess is assumed at Rs 4500/tonne in the base case for five years through FY13-17 and then
hiked by Rs2000/tonne every five years, while in the bull case it remains constant
throughout the life of the field.
EOR in Mangala to be implemented in FY15.
Field-life of MBA fields till FY41.
Bear case
In our bear case, we assume exit rate of 195,000bopd by end of FY14 with Mangala,
Bhagyam and Aishwarya producing 145,000bopd, 40,000bopd and 10,000bopd respectively
by end of FY14. However, we assume peak rate of 10,000bopd for Aishwarya.
We assume brent crude to be $105/bbl and $95/bbl in FY14 and FY15 respectively, while
for long-term we assume price to be $85/bbl.
Cess is assumed at Rs 4500/tonne in the bear case for five years through FY13-17 and then
hiked by Rs2000/tonne every five years.
Bull case
In our bull case, we assume exit rate of 195,000bopd by end of FY14 with Mangala,
Bhagyam and Aishwarya producing 145,000bopd, 40,000bopd and 10,000bopd respectively
by end of FY14. However, we assume peak rate of 50,000bopd and 20,000bopd for
Bhagyam and Aishwarya respectively.
We assume brent crude to be $115/bbl and $105/bbl in FY14 and FY15 respectively, while
for long-term we assume price to be $95/bbl.
Cess is assumed to remain constant at Rs 4500/tonne throughout the life of the field.
CILs production from various blocks

Cairn has three producing assets namely, Rajasthan block, Ravva and Cambay. While Rajasthan
block is on a ramp-up phase Ravva and Cambay being mature fields are on decline. Currently
Rajasthan block is producing at the rate of 175,000 bopd and Ravva and Cambay at ~28,000
boepd and ~6,000 boepd.
Crude production (mmboe)
FY10
FY11
FY12
FY13E
FY14E
FY15E
3.80
25.80
32.82
43.25
47.78
52.93
Rajasthan Block
Growth Y-o-Y
580%
27%
32%
10%
11%
Ravva
3.34
3.03
2.99
2.68
2.41
2.17
Growth Y-o-Y
-38%
-9%
-2%
-10%
-10%
-10%
Cambay
1.97
1.63
1.20
0.96
0.77
0.61
Growth Y-o-Y
-21%
-17%
-26%
-20%
-20%
-20%
Total
9.11
30.47
37.02
46.89
50.96
55.72
Growth Y-o-Y
16%
234%
21%
27%
9%
9%
Rajasthan Block
Cairn began production from Mangala block in August 2009 and is currently producing at
150,000 bopd. Bhagyam has started production in Jan 2012 and is currently producing at 20,000
bopd while Aishwarya has commenced production recently.
Production (mnbbls)
FY10
FY11
FY12A
FY13E
FY14E
FY15E
5.4
36.9
45.6
54.3
53.8
52.0
580%
24%
19%
-1%
-3%
0.0
1.2
Mangala
Growth Y-o-Y
Bhagyam
0.0
Growth Y-o-Y
Aishwarya
Growth Y-o-Y
Rageshwari and Saraswati
0.0
0.0
0.0
Growth Y-o-Y
11.0
14.6
50%
33%
0.0
3.2
6.8
114%
0.0
0.0
0.1
0.2
0.3
0.4
143%
50%
33%
Growth Y-o-Y
Total
7.3
512%
5.4
36.9
46.9
61.8
68.3
73.8
580%
27%
32%
10%
8%
Source: Violet Arch Research; Doesnt include EOR production from MBA
Per boe analysis of Rajasthan Block

USD per bbl
FY10
FY11
FY12A
FY13E
FY14E
FY15E
Gross realisation
65.6
76.3
103.5
98.1
96.8
79.2
Royalty
0.0
0.0
24.4
14.7
14.5
11.9
Govt. share of profit petroleum
0.0
0.0
5.4
12.3
17.7
13.6
71.0
80.0
73.3
71.1
64.5
53.8
7.6
7.9
7.5
11.6
11.9
12.4
Direct field opex + Pipeline opex
13.6
3.4
5.0
5.0
5.0
5.1
EBITDA
49.8
68.8
60.8
54.5
47.6
36.3
9.0
9.0
9.0
8.0
9.0
9.0
40.8
59.8
51.8
46.5
38.6
27.3
8.4
12.2
10.6
9.5
7.9
5.6
32.5
47.5
41.2
37.0
30.7
21.7
Net Realisation
Cess
DDA expense
PBT
Tax expense
PAT
Sensitivity Analysis
Impact of 5% change in various parameters on EPS and EBITDA in FY14
Particulars
EBITDA impact
EPS impact
Crude price
6.2%
6.3%
Exchange rate
6.0%
5.2%
Production volume
5.0%
4.3%
Cairn is a pure play on crude and as such it has a very high co-relation with how the crude prices
move. The correction in crude prices during June12 from $125/bbl to $100/bbl also saw 15-20%
correction in Cairn. We expect crude prices to remain stable at $110/bbl for next one year and
$90/bbl in the long-term and USD-INR to average Rs 53/$ in FY14 and Rs 49/$ in long-term.
Valuation
Long-term crude price assumption (USD/bbl)
Long-term
USD-INR rate
assumption
80
90
100
110
120
45
320
348
380
412
444
47
328
357
391
424
457
49
337
367
401
435
470
51
340
376
411
447
482
53
349
385
422
458
495
EPS FY14
FY14 crude price assumption (USD/bbl)
FY14 USD-INR
rate
assumption
100
105
110
115
120
49
42.5
45.3
48.0
50.8
53.5
51
44.3
47.2
50.1
52.9
55.8
53
46.1
49.1
52.1
55.1
58.1
55
47.9
51.0
54.1
57.2
60.3
57
49.7
52.9
56.2
59.4
62.6
EBITDA FY14
1
FY14 USD-INR
rate
assumption
100
105
110
115
120
49
98.2
104.6
111.0
117.4
123.7
51
103.2
109.9
116.5
123.2
129.8
53
108.2
115.1
122.1
129.0
135.9
55
113.3
120.4
127.6
134.8
141.9
57
118.3
125.7
133.1
140.6
148.0
SWOT Analysis
Strengths
1) World class asset 'Rajasthan Block'
with GHIIP at around 7.3bnboe and
recoverable reserves at about
1.7bnboe.
2) Low cost of production with direct
field opex and pipeline opex at
$3.5/bbl and $1.5/bbl.
3) Strong balance sheet with cash in
hand at Rs 140bn as of 31st Dec'12.
4) Superior execution capabilities as
seen in the case of Rajasthan block,
Ravva and Cambay.
Threats
Weaknesses
1) Delay in approvals from the

government could lead to delays
in achieveing the production
guidance in Rajasthan Block.
2) The government raising
statutory levies impacting
profitability of Cairn.
SWOT
Analysis
3) Falling crude prices leading to

a fall in profits.
1) As of now, Cairn is considered

a single asset player, as majority
of its production is expected
from Rajasthan Block in the near
term.
2) Being mature fileds, Cambay
and Ravva production on
decline.
Opportunities
1)The Barmer Hill formation reserves
recovery factor at around 8%.
Reserves of similar nature has had
recovery factors of up to 20%.
2) Further exploratory efforts could
lead to upgradation of 2P reserves in
Rajasthan Block.
3) 10 exploratory assets in three
strategically focused areas: one in
Rajasthan; three on the west coast of
India; six on the east coast of India,
including one in Sri Lanka.
Investment Arguments
Recently, CIL raised its Rajasthan potential resource to around 7.3 billion barrels of oil
equivalent (boe) from earlier estimates of about 6.5boe, with discovered resources in Mangala,
Bhagyam, Aishwarya, Rageshwari, Saraswati and other fields at around 4.2bnboe. The
Fatehgarh formation in MBARS fields hold 2.1bnboe, of which the proved and probable (2P)
recoverable reserves are estimated at over 1 billion barrels, including enhanced oil recovery
(EOR) reserves of 308mmboe (recently, 70mmboe has been moved from 2C reserves to 2P
reserves ). Twenty other fields, including the Barmer Hill formation, are estimated to hold about
2.0bnboe, of which the gross 2P recoverable resource is estimated to be 165mmboe (compared
to earlier estimates of 140mmboe). The further exploration upside potential in Rajasthan is
currently estimated at around 3.1bnboe. A detailed basin re-evaluation, through re-analysis of
well data, re-processing of seismic data and updated understanding of petroleum systems, has
shown significant growth in the exploration portfolio, with gross risked prospective recoverable
resources of 530mmboe (compared to earlier estimates of 250mmboe). The expected ultimate
recovery (EUR) for Rajasthan Block currently stands at 1.7bnboe from the earlier estimate of
1.4bnboe.
Rajasthan resource potential

Gross Initial
In Place
Volumes
Gross
Reserves, Resources
and Potential
~2.5 Billion boe in

35+ prospects
Gas
GIIP
20 additional
discovered
fields including
Barmer Hill
Oil
STOIIP
308
Contingent
In Place
707
MBA
EOR
R & S 12
R & S STOIIP
293
140
Risked
Prospective
Resource
BH
+ Others
1 The independent estimates of Reserves

And Contingent Resourcesrecently
carried out by D&M are
in line with the CIL estimates
2 Top 35 prospects audited by D&M
risked resource 178 mmbbls
A 66
78
250
B
151
468
MBA Fields,
Raageshwari
and Saraswati
FDP approved
MBA
STOIIP
M
477
1 293
M
R&S
Contingent
Resource
2P+2C
MBA EOR
Barmer Hill
+Other Fields
Risked
Prospects,
Leads &
Concepts
The stock tank oil initially in-place (STOIIP) of 2.1bnbbl of MBA fields has an implied recovery
factor of around 30% from primary oil recovery techniques. After implementing EOR
techniques, the same would increase to 48%. The Barmer Hill formation, along with 19
discoveries, with an STOIIP of 2.0bnbbl has an expected ultimate recovery (EUR) of 8%. Fields in
other parts of the world with characteristics similar to Barmer Hill are being developed and have
demonstrated recovery factors in the range of 7-20%. However, we prefer to maintain a
conservative stance and assume a recovery factor of 8% in our valuation as per CIL. Prospective
resources (35-plus prospects) in Rajasthan Block have a EUR of 17%. Recently, Government of
India (GoI) has decided to permit exploration in the development area of Rajasthan block.

Pursuant to policy clarity on exploration, Management Committee (MC) has requested the JV to
submit an exploration work programme for the Rajasthan block. The company has drilled its
first exploratory well in Feb13 (first such well after a hiatus of almost 4 years) in the Rajasthan
block. Rajasthan exploration and appraisal well drilling is planned over a three year period.
Approximately 30 exploration and appraisal wells are to be drilled per year (divided into 20
exploration, 10 appraisal approximately). The company plans to drill over 100 prospects in total
over the next three year period. Capex of approximpately USD 1.0bn is planned for these
activities and depending on the technical and commercial viability of discoveries, the
exploration capex will be cost recoverable. Given the proven prospectivity of the block and track
record of the company, we expect further addition to its reserve potential.
Cairn reserve upgrades over the years

8.0
100%
80%
6.0
60%
4.0
40%
2.0
20%
0.0
0%
Pre-IPO
Post-IPO
GHIIP
EUR
FY08
FY10
FY12
Growth in GHIIP
Growth in EUR
Source: Company; VioletArch Securities
CAIRN INDIA ANNUAL REPORT 2010-11
250
Further
investment and
Government of
India approval
Risked
Prospective
Resource
140
308
Barmer Hill
+
Others
707
Aishwariya
10,000 bopd
in mmbbls
308 EOR
12
Bhagyam
40,000 bopd
Raageshwari
and Saraswati
240,000 bopd
in mmboe
14
66 Aishwariya
Mangala
125,000 bopd
151 Bhagyam
477 Mangala
2P+2C
2P+2C+EOR
Barmer Hill +
other f elds
Risked
Prospects,
Leads and
Cocepts
Target Potential
Production
FDP Approved
Production
175,000 bopd
1 The independent estimates of Reserves and Contingent Resources

carried out by D&M are in line with the CIL estimates
Rajasthan resource base and vision for growth
2 Top 35 prospects audited by D&M risked resource 178 mmbbls
10

Rajasthan resource base potential
Stock Tank Oil
Initially in Place
2168
Recoverable
(EUR)
1044
Barmer Hill + 19 discoveries
2010
165
8%
Prospective
3100
530
17%
Total
7278
1739
24%
mmboe
MBA + EOR
Recovery Factor
48%
Rajasthan Block production to increase by 22% by end of FY15

In August 2009, CIL began production at Mangala Field. Initially, it was expected to produce at
the plateau rate of 125,000bopd. However, later it was observed that the excellent reservoir
performance could support a higher plateau rate of 150,000bopd. Subsequently, the company
ramped up production at Mangala Field from 125,000bopd to 150,000bopd in April within a day
of securing governments approval, since all development wells were ready. Incidentally,
Bhagyam has approval to produce at 40,000bopd, but its current production is stuck between
20,000bopd to 25,000bopd as shallow nature of the field combined with higher viscosity of oil
resulted in lower well productivity than anticipated. As per management, approximately 70
additional wells (according to Bhagyam FDP, to reach 40,000bopd 81 development wells were
required out of which 64 has been drilled) would be required to be drilled in the Bhagyam field
to achieve the production rate of 40,000bopd. The company has already received approval for
15 such wells from the management committee and expects production to reach 40,000bopd in
H2FY14. Bhagyam is also expected to produce at higher levels, but a revised FDP is yet to be
submitted. However, taking a conservative stance we assume Bhagyam to achieve a peak rate
of 40,000bopd instead of 50,000bopd (see the graph below). In Aishwarya field, oil-in-place is
substantially higher than originally estimated. According to our calculations, the field can
produce oil at the rate of 20,000bopd. However, at present, CIL has approval only for
production of 10,000bopd and it has to submit revised FDP for raising the production. We
expect company to be more aggressive on this front and submit FDPs in 2HFY14. The company
management has guided exit rate of 200,000bopd to 215,000bopd by end of FY14, of which a
major portion of production is expected from MBA fields. In our model, we have assumed exit
rates for MBA fields of 195,000bopd and 210,000bopd for FY14 and FY15, respectively.
MBA production (bopd)

200000
150000
100000
50000
Mangala
Bhagyam
Aishwarya
FY15E
FY14E
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
Q1FY12
Q4FY11
Q3FY11
Q2FY11
Q1FY11
Q4FY10
Q3FY10
Q2FY10
Q1FY10
Rageshwari & Saraswati
11

Additionally, CIL estimates about 165mmboe of recoverable resources from Barmer Hill and 19
other fields, besides another 530mmboe, compared to 250mmboe earlier, from the exploration
upside. CIL expects incremental production from these resources, which will help the company
to achieve its long-term target of peak production of 300,000bopd from Rajasthan Block.
MBA field production rates

CIL has the requisite approval for production in Mangala, Bhagyam and Aishwarya for
150,000bopd, 40,000bopd and 10,000bopd, respectively. It has secure approvals for further
scale-up of production from Bhagyam and Aishwarya.
Current production
rate (bopd)
Approved production
rate (bopd)
Peak production rate

(bopd)
Mangala
150000
150000
150000
Bhagyam
25000
40000
Not yet disclosed
Aishwarya
N.A.*
10000
20000
Comments
All approvals in place
Revised FDP for higher rate yet to be
submitted
Revised FDP for 20,000bopd yet to be
submitted
Source: Violet Arch Research; *CIL has commenced production in Aishwarya field on 25 th Mar13. However, the data is not available
Peak rate calculation

Although the management has not given any guidance on the peak potential of Bhagyam Field,
we expect the same to be about 50,000bopd as per calculations shown below.
Mangala
477

as of now as per
company (bopd)
150000
Bhagyam
151
40000
3.78
50000
3.02
Aishwarya
66
10000
6.60
20000
3.30
12
3500
3.43
223500
3.02
2P Reserves (mmboe)
Total
706
2P/Peak rate
3.18
200000
Peak production
rate as per our 2P/Peak rate
estimate (bopd)
150000
3.18
3.53
Source: Violet Arch Research; This is our own assumption and is not based on any scientific theory. Peak rates could vary depending on reservoir characteristics.
MBA production schedule over FY14-15

Rajasthan Block has the requisite approval for achieving a production rate of 190,000bopd.
However, due to delay in ramp-up of Bhagyam and commencement of production from
Aishwarya, it is unable to clock a production rate currently beyond 175,000bopd. Also the
pipeline capacity (175,000bopd) constraint has to be taken care before ramp-up at Bhagyam
happens. The management has indicated that the pipeline can support 10% additional flow-rate
with debottlenecking. Further, the company plans to use DRA (Drag Reducing Agents) to reduce
the viscosity of oil so that flow rate could be increased further to support the upper-end of
management guidance of 215,000bopd. We estimate an exit rate from MBA of 195,000bopd
210,000bopd in FY14 and FY15, respectively.
Q1FY14E
Q2FY14E
Q3FY14E
Q4FY14E
Q1FY15E
Q2FY15E
Q3FY15E
Q4FY15E
Mangala
150,000
150,000
145,000
145,000
145,000
145,000
140,000
140,000
Bhagyam
20,000
20,000
30,000
40,000
40,000
40,000
40,000
40,000
Aishwarya
5,000
10,000
10,000
10,000
15,000
20,000
20,000
20,000
10,000
10,000
10,000
10,000
210,000
215,000
210,000
210,000
Mangala EOR
Total
175,000
180,000
185,000
195,000
12
Key Risks and Concerns

Policy-Regulatory Risks / Uncertainties
Particulars
Crude price
Royalty
Cess
Cost Petroleum
Profit Petroleum
Tax Holiday
Contract period
Gas price hike
Profit sharing model to revenue

sharing model
Allowing exploration in producing

blocks
Defense ministry declaring

certain exploration areas as NoGo areas.
Comments
Arrived at a specific formula approved by the government in the PSC. Discount to brent crude
ranges in between 10% to 15%.
It is 20% of well-head value. However, it works out to 15-16% of realizaed value and may vary
slightly depending on governement calculation of post well-head value.
Cess increased by governement in budget FY13 from Rs 2500/MT to Rs 4500/MT. There is a chance
of hike in cess going forward. However, too high a hike or too frequent a hike in cess may also
impact ONGC and Oil India to a large extent with their crude realization being determined by
government.
Cairn is allowed to recover its capex and production costs (upto 100% of revenues) before sharing
any profit petroleum. However, government may disapprove some capex or costs upon its own
assessment. Government has earlier rejected USD 238mn of capex by Cairn during its previous
exploration phase in Rajasthan block.
Post all the cost recovery, Profit Petroleum sharing with the government as is calculated as per the
investment multiple. If government disapproves some costs, the share of profit petroleum of Cairn
may decrease.
Seven year tax holiday form the start of production. However Cairn continues to pay Minimum
Alternate Tax (MAT). Also, any gas commercialization may not come under tax holiday as natural
gas is not considered as mineral oil.
The contract is valid upto May 2020 and can be extended on mutual agreement but terms may be
changed by DGH while giving approval for extension.
As per recommendations of Rangarajan panel, the government may look into hiking the price of
gas by linking it to a price arrived upon by taking into consideration gas prices across various
sources. Cairn is looking forward to monetize its gas discoveries in Rajasthan block. However,
Rajasthan being a pre-NELP block gas price will be determined by government. For any discovery
from NELP blocks awarded to Cairn, gas price hike would be a positive step.
Under the existing production sharing contract (PSC), the contractor first recovers his expenditure
before sharing profit. What is under consideration is production-linked payment, which is said to
be more transparent and will have less intervention in routine exploration and development
activities.
Under this proposal, oil companies would have to pay the Government an agreed amount,
depending on the level of output, and not on the investment in the exploration block. The existing
production from Rajasthan block comes under profit sharing model. However, with Cairn
embarking once again on exploration programme in Rajasthan block, any new commercial
discovery may come under revenue sharing model.
The petroleum ministry has allowed exploration in mining lease (producing fields) areas but
exploration costs will be allowed for cost recovery only if a discovery is technically and
commercially viable. The contractor will therefore carry out further exploration activities at its risk
in the Mining Lease area, after the expiry of the exploration period. Positive for the whole sector.
Cairn has already embarked on a 3 year exploration programme in Rajasthan block to tap 3.2bnboe
of reserves of exploration upside. However, the costs will be recoverable only on the
establishment of commerciality of discovery.
Force majeure had been declared in Cairn's KG-OSN-2009/3, MB-DWN-2009/1, PR-OSN-2004/1
blocks due to the denial of permission to carry out exploration activity in the restricted area by the
Ministry of Defence. CCI in its meeting held in Mar13 has given clearance for exploration activity in
small portion of the KG-OSN-2009/3 block. However, further clarity is awaited on the rest of the
blocks.
The government gave its approval for the Cairn-Vedanta deal only after Cairn agreed to make
royalty cost recoverable in the Rajasthan block. Prior to this, as per a previous agreement, the
entire royalty burden was being borne by ONGC which owns a 30% stake in the block. The
government also forced Cairn to withdraw a court case against cess levied in the Rajasthan block
which it was paying under protest.
Cairn-Vedanta deal
13
Delay in approvals from ONGC and DGH

The CIL management expects to hit exit rate of 215,000bopd in FY14 post-commencement of
production in Aishwarya and ramp-up in Bhagyam. Revised FDPs for Bhagyam and Aishwarya
are yet to be submitted, which would help the company reach beyond 215,000bopd production
target in the near term. In our model, we have assumed production from Aishwarya to touch
10,000bopd in Q2FY14 and 20,000bopd in Q2FY15 and production from Bhagyam to touch
40,000bopd in Q4FY14. Any further delay could result in delayed cash-flows for the company.
Further, CIL has expects to monetize the other smaller discoveries in Rajasthan block to meet its
guidance rate of 215,000bopd in FY14. Any delay in seeking the regulator and JV partners
approval will push back the companys cash-flows, thereby eroding investor confidence.
Falling crude prices

Being a direct play on crude oil prices, CIL is exposed to crude price volatility. In our valuation,
we have assumed a long-term brent crude price of $90/bbl. Any correction in crude prices
beyond that level will affect the companys profitability and share price.
CIL valuation sensitivity analysis

Long-term
USD-INR
rate
assumption
80
90
100
110
120
45
318
345
377
409
441
47
326
355
387
420
453
49
334
364
398
432
466
51
338
373
408
443
478
53
346
382
418
454
491
FY14 EPS sensitivity analysis

FY14 USDINR rate

assumption
100
105
110
115
120
49
42.5
45.3
48.0
50.8
53.5
51
44.3
47.2
50.1
52.9
55.8
53
46.1
49.1
52.1
55.1
58.1
55
47.9
51.0
54.1
57.2
60.3
57
49.7
52.9
56.2
59.4
62.6
Increase in statutory levies by government

In the Budget FY13, the government increased the cess from Rs 2500 per tonne to Rs 4500 per
tonne, which impacted CILs profitability by USD6/bbl. The move impacted FY13 EPS by around
Rs4.2 and valuation by about 8%. To be on conservative side we have assumed cess to increase
by Rs 2000/tonne after every five years which resulted in CIL valuation of Rs 364/share as
compared to Rs 380/share if these is no increase in cess further.
Failure to convert exploration assets into unrisked potential reserves

Currently, CIL is considered a single-asset player (Rajasthan Block), and any failure to convert its
current exploration portfolio into unrisked potential resource base could lead to erosion of
investor confidence in the company.
14

Also Cairn has embarked upon a 3-year exploration programme in Rajasthan block to tap the
~3.1bnboe of prospective reserves from exploration upside. Any failure to convert these
exploration upsides into production would be a negative trigger for the stock as the exploration
costs for these are cost recoverable only upon commercial and technical success of the
discovery.
Mis-use of strong cash-flow of CIL by Vedanta

Over the years Cairn India has done well in exploration and production space through a
tremendous performance in Rajasthan, Cambay and Ravva. But the change in ownership has
created doubts in the investors minds considering the inexperience of Vedanta in oil and gas
sector as well as chance of mis-use of strong cash-flow of CIL to repay debt of its other group
companies in a way that it may not be beneficial to minority shareholder. However, Vedanta has
sought to allay these fears by stating to fulfill Cairn Indias commitments towards exploration
and production activities in India, Sri Lanka.
15
Valuation
On the back of a further ramp-up of Bhagyam and Aishwarya, CILs production is expected to
reach 195,000bopd by end-FY14 from the current rate of 175,000bopd. Rajasthan Blocks nearterm potential is estimated at 215,000bopd, which is expected to come largely from MBA fields.
The long-term potential, as per the management guidance, is 300,000bopd, which is expected
from monetization of Barmer Hill and 19 discoveries as well as exploration upsides. We value
MBA fields on a NAV basis and other reserves on an EV/boe basis in order to arrive at a target
price of Rs 367 per share, which reflects an EV/boe of $9.3/bbl.
Assumptions for MBA

MBA production
Production to be 187,000 bopd in FY14; 207,250 bopd in FY15 and ~210,000 bopd through FY16-FY20
MBA - EOR
To start in mid-FY15 in Mangala, in FY16 in Bhagyam and in FY17 in Aishwarya
Brent crude price
USD 110/bbl in FY14 and USD 100/bbl in FY15 and USD 90/bbl for long-term
Discount to Brent crude
12%
Exchange rate
Rs 53/USD in FY14; Rs 51/USD in FY15 and Rs 49/USD for long-term
Capex
Direct field opex
Pipeline opex
Royalty
Cess
WACC
USD 2.0 bn over FY14 and FY15

USD 3.5/bbl
USD 1.5/bbl
15.5% of Revenues
Rs 4500/tonne for through FY13-17 and hiked by Rs 2000/tonne thereafter every five years
10%
CIL's cash-flows from MBA (Rs bn)

Revenues
FY14E
FY15E
FY16E
FY17E
FY18E
FY19E
FY20E
200.2
177.2
159.3
147.6
155.7
156.2
156.6
Production costs
12.7
13.9
15.3
16.8
18.4
19.3
20.3
Cess + Royalty
66.9
65.5
65.4
65.4
80.1
80.1
80.0
Capex
Pre-tax cash-flows
Tax
Post-tax cash-flow
15.7
12.4
3.9
3.9
3.9
3.9
3.9
104.9
85.4
74.8
61.5
53.4
52.9
52.4
20.0
15.1
11.2
8.5
6.9
6.8
10.8
84.8
70.4
63.6
53.0
46.5
46.1
41.6
NAV
383.1
No of o/s shares (mn)
1908
NAV per share (Rs/share)
201
CIL valuation
Block
MBA + EOR
Barmer Hill
Exploration Upside Potential
Ravva
Cambay
Total
Debt
Cash & Cash Eq
Cairn India
Net 2P/ Recoverable

Reserves (mmbbl)
Rs/share
(USD/boe)
620
116
371
14
4
1,125
-
201
15
48
3
1
268
0
99
367
12.6
5.0
5.0
8.8
8.8
9.3
-
16

One-year forward PE
One-year forward PBV

550
600
450
400
350
300
250
200
150
100
50
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Cairn
PER - 7
PER - 5
PER - 8
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
500
Cairn
PBV - 1.0
PER - 6
PER - 9
One-year forward EV/EBITDA
PBV - 0.6
PBV - 1.2
PBV - 0.8
PBV - 1.4
One-year forward EV/BOE
1000000
15000
800000
13000
11000
600000
9000
400000
3000
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
5000
Cairn (Rs Mn)

EV/EBITDA-6
EV/EBITDA-4
EV/EBITDA-7
EV/EBITDA-5
EV/EBITDA-8
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
7000
200000
Cairn (USD Mn)

EV/BOE-10
EV/BOE-6
EV/BOE-12
EV/BOE-8
EV/BOE-14
17
Peer comparison
MCap
(USD
mn)
Company
PE (x)
2013
P/B (x)
EV/EBITDA (x)
RoE (%)
EV/Total
developed
Reserves (x)
2014
2013
2014
2013
2014
2013
2014
Latest available
E&P players
Anadarko Petroleum Corp.
43339
21.6
16.6
1.9
1.7
5.8
5.1
9.2%
11.6%
22
Apache Corp.
29192
8.0
7.2
0.9
0.8
3.4
3.1
11.2%
12.5%
15
Kunlun Energy coco. Ltd.
17573
16.5
14.1
2.7
2.3
8.6
7.2
16.8%
17.9%
Husky Energy Inc.
28612
15.3
13.1
1.5
1.4
5.6
4.8
10.0%
12.1%
32
Talisman Energy Inc.
12485
48.2
25.6
1.3
1.2
5.0
4.1
2.9%
5.0%
19
Encana Corp.
14058
29.2
15.6
2.0
1.8
6.0
4.6
7.1%
14.2%
11
Chesapeake Energy Corp.
13612
17.1
11.4
1.0
6.7
5.7
6.8%
9.7%
12
Devon Energy Corporation
23268
16.2
11.5
1.0
0.9
5.0
4.1
6.5%
9.0%
Suncor Energy Inc.
46104
10.0
9.5
1.1
1.0
4.6
4.3
11.8%
11.8%
Eog Resources Inc.
33963
21.3
16.1
2.2
1.9
5.8
4.7
10.9%
15.2%
22
Santos Ltd.
12788
21.5
20.2
1.3
1.2
6.9
6.2
5.9%
6.2%
20
Woodside Petroleum Ltd.
31806
15.7
13.8
2.0
1.8
7.8
6.9
12.8%
13.3%
28
Oil Search Ltd
10596
66.2
32.4
3.2
2.9
31.0
19.5
4.8%
9.1%
38
Average
24415
23.6
15.9
1.7
1.6
7.9
6.2
9.0%
11.4%
20.7
CIL (Bloomberg estimates)
9787
4.6
5.2
0.9
0.8
3.0
3.2
21.5%
16.4%
CIL (Violet Arch estimates)
9892
5.4
7.3
0.8
0.8
2.6
2.8
15.3%
10.4%
9.3
As seen from the above data, CIL trades at cheaper valuation compared to its global E&P peers
on all parameters. We believe this is largely due to the fact that so far CIL is seen as a singleasset company, with production in the near term expected from Rajasthan Block. Any success in
its exploration portfolio could lead to re-rating of the stock.
18
Investment Arguments
Recently, CIL raised its Rajasthan potential resource to around 7.3 billion barrels of oil
equivalent (boe) from earlier estimates of about 6.5boe, with discovered resources in Mangala,
Bhagyam, Aishwarya, Rageshwari, Saraswati and other fields at around 4.2bnboe. The
Fatehgarh formation in MBARS fields hold 2.1bnboe, of which the proved and probable (2P)
recoverable reserves are estimated at over 1 billion barrels, including enhanced oil recovery
(EOR) reserves of 308mmboe (recently, 70mmboe has been moved from 2C reserves to 2P
reserves ). Twenty other fields, including the Barmer Hill formation, are estimated to hold about
2.0bnboe, of which the gross 2P recoverable resource is estimated to be 165mmboe (compared
to earlier estimates of 140mmboe). The further exploration upside potential in Rajasthan is
currently estimated at around 3.1bnboe. A detailed basin re-evaluation, through re-analysis of
well data, re-processing of seismic data and updated understanding of petroleum systems, has
shown significant growth in the exploration portfolio, with gross risked prospective recoverable
resources of 530mmboe (compared to earlier estimates of 250mmboe). The expected ultimate
recovery (EUR) for Rajasthan Block currently stands at 1.7bnboe from the earlier estimate of
1.4bnboe.
Rajasthan resource potential

Gross Initial
In Place
Volumes
~2.5 Billion boe in

35+ prospects
Gas
GIIP
20 additional
discovered
fields including
Barmer Hill
Oil
STOIIP
140
Risked
Prospective
Resource
BH
+ Others
308
Contingent
In Place
707
MBA
EOR
R & S 12
R & S STOIIP
293
1 The independent estimates of Reserves

And Contingent Resourcesrecently
carried out by D&M are
in line with the CIL estimates
2 Top 35 prospects audited by D&M
risked resource 178 mmbbls
A 66
78
250
Gross
Reserves, Resources
and Potential
B
151
468
MBA Fields,
Raageshwari
and Saraswati
FDP approved
MBA
STOIIP
M
477
1 293
M
R&S
Contingent
Resource
2P+2C
MBA EOR
Barmer Hill
+Other Fields
Risked
Prospects,
Leads &
Concepts
The stock tank oil initially in-place (STOIIP) of 2.1bnbbl of MBA fields has an implied recovery
factor of around 30% from primary oil recovery techniques. After implementing EOR
techniques, the same would increase to 48%. The Barmer Hill formation, along with 19
discoveries, with an STOIIP of 2.0bnbbl has an expected ultimate recovery (EUR) of 8%. Fields in
other parts of the world with characteristics similar to Barmer Hill are being developed and have
demonstrated recovery factors in the range of 7-20%. However, we prefer to maintain a
conservative stance and assume a recovery factor of 8% in our valuation as per CIL. Prospective
resources (35-plus prospects) in Rajasthan Block have a EUR of 17%. Recently, Government of
India (GoI) has decided to permit exploration in the development area of Rajasthan block.
19

Pursuant to policy clarity on exploration, Management Committee (MC) has requested the JV to
submit an exploration work programme for the Rajasthan block. The company has drilled its
first exploratory well in Feb13 (first such well after a hiatus of almost 4 years) in the Rajasthan
block. Rajasthan exploration and appraisal well drilling is planned over a three year period.
Approximately 30 exploration and appraisal wells are to be drilled per year (divided into 20
exploration, 10 appraisal approximately). The company plans to drill over 100 prospects in total
over the next three year period. Capex of approximpately USD 1.0bn is planned for these
activities and depending on the technical and commercial viability of discoveries, the
exploration capex will be cost recoverable. Given the proven prospectivity of the block and track
record of the company, we expect further addition to its reserve potential.
Cairn reserve upgrades over the years

8.0
100%
80%
6.0
60%
4.0
40%
2.0
20%
0.0
0%
Pre-IPO
Post-IPO
GHIIP
EUR
FY08
FY10
FY12
Growth in GHIIP
Growth in EUR
Source: Company; VioletArch Securities
CAIRN INDIA ANNUAL REPORT 2010-11
250
Further
investment and
Government of
India approval
Risked
Prospective
Resource
140
308
Barmer Hill
+
Others
707
Aishwariya
10,000 bopd
in mmbbls
308 EOR
12
Bhagyam
40,000 bopd
Raageshwari
and Saraswati
240,000 bopd
in mmboe
14
66 Aishwariya
Mangala
125,000 bopd
151 Bhagyam
477 Mangala
2P+2C
2P+2C+EOR
Barmer Hill +
other f elds
Risked
Prospects,
Leads and
Cocepts
Target Potential
Production
FDP Approved
Production
175,000 bopd
1 The independent estimates of Reserves and Contingent Resources

carried out by D&M are in line with the CIL estimates
Rajasthan resource base and vision for growth
2 Top 35 prospects audited by D&M risked resource 178 mmbbls
20

Rajasthan resource base potential
Stock Tank Oil
Initially in Place
2168
2010
3100
7278
mmboe
MBA + EOR
Barmer Hill + 19 discoveries
Prospective
Total
Recoverable
(EUR)
1044
165
530
1739
Recovery Factor
48%
8%
17%
24%
Rajasthan Block production to increase by 22% by end of FY15

In August 2009, CIL began production at Mangala Field. Initially, it was expected to produce at
the plateau rate of 125,000bopd. However, later it was observed that the excellent reservoir
performance could support a higher plateau rate of 150,000bopd. Subsequently, the company
ramped up production at Mangala Field from 125,000bopd to 150,000bopd in April within a day
of securing governments approval, since all development wells were ready. Incidentally,
Bhagyam has approval to produce at 40,000bopd, but its current production is stuck between
20,000bopd to 25,000bopd as shallow nature of the field combined with higher viscosity of oil
resulted in lower well productivity than anticipated. As per management, approximately 70
additional wells (according to Bhagyam FDP, to reach 40,000bopd 81 development wells were
required out of which 64 has been drilled) would be required to be drilled in the Bhagyam field
to achieve the production rate of 40,000bopd. The company has already received approval for
15 such wells from the management committee and expects production to reach 40,000bopd in
H2FY14. Bhagyam is also expected to produce at higher levels, but a revised FDP is yet to be
submitted. However, taking a conservative stance we assume Bhagyam to achieve a peak rate
of 40,000bopd instead of 50,000bopd (see the graph below). In Aishwarya field, oil-in-place is
substantially higher than originally estimated. According to our calculations, the field can
produce oil at the rate of 20,000bopd. However, at present, CIL has approval only for
production of 10,000bopd and it has to submit revised FDP for raising the production. We
expect company to be more aggressive on this front and submit FDPs in 2HFY14. The company
management has guided exit rate of 200,000bopd to 215,000bopd by end of FY14, of which a
major portion of production is expected from MBA fields. In our model, we have assumed exit
rates for MBA fields of 195,000bopd and 210,000bopd for FY14 and FY15, respectively.
MBA production (bopd)

200000
150000
100000
50000
Mangala
Bhagyam
Aishwarya
FY15E
FY14E
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
Q1FY12
Q4FY11
Q3FY11
Q2FY11
Q1FY11
Q4FY10
Q3FY10
Q2FY10
Q1FY10
Additionally, CIL estimates about 165mmboe of recoverable resources from Barmer Hill and 19
other fields, besides another 530mmboe, compared to 250mmboe earlier, from the exploration
upside. CIL expects incremental production from these resources, which will help the company
to achieve its long-term target of peak production of 300,000bopd from Rajasthan Block.
21
MBA field production rates

CIL has the requisite approval for production in Mangala, Bhagyam and Aishwarya for
150,000bopd, 40,000bopd and 10,000bopd, respectively. It has secure approvals for further
scale-up of production from Bhagyam and Aishwarya.
Current production
rate (bopd)
Approved production
rate (bopd)

(bopd)
Mangala
150000
150000
150000
Bhagyam
20000
40000
Not yet disclosed
Aishwarya
N.A.*
10000
20000
Comments
All approvals in place
Revised FDP for higher rate yet to be
submitted
Revised FDP for 20,000bopd yet to be
submitted
th
Source: Violet Arch Research; *CIL has commenced production in Aishwarya field on 25 Mar13. However, the data is not available
Peak rate calculation

Although the management has not given any guidance on the peak potential of Bhagyam Field,
we expect the same to be about 50,000bopd as per calculations shown below.
Mangala
477

as of now as per
company (bopd)
150000
Bhagyam
151
40000
3.78
50000
3.02
Aishwarya
66
10000
6.60
20000
3.30
12
3500
3.43
223500
3.02
2P Reserves (mmboe)
Total
706
2P/Peak rate
3.18
200000
Peak production
rate as per our 2P/Peak rate
estimate (bopd)
150000
3.18
3.53
Source: Violet Arch Research; This is our own assumption and is not based on any scientific theory. Peak rates could vary depending on reservoir characteristics.
MBA production schedule over FY14-15

Rajasthan Block has the requisite approval for achieving a production rate of 190,000bopd.
However, due to delay in ramp-up of Bhagyam and commencement of production from
Aishwarya, it is unable to clock a production rate currently beyond 175,000bopd. Also the
pipeline capacity (175,000bopd) constraint has to be taken care before ramp-up at Bhagyam
happens. The management has indicated that the pipeline can support 10% additional flow-rate
with debottlenecking. Further, the company plans to use DRA (Drag Reducing Agents) to reduce
the viscosity of oil so that flow rate could be increased further to support the upper-end of
management guidance of 215,000bopd. We estimate an exit rate from MBA of 195,000bopd
210,000bopd in FY14 and FY15, respectively.
Q1FY14E
Q2FY14E
Q3FY14E
Q4FY14E
Q1FY15E
Q2FY15E
Q3FY15E
Q4FY15E
Mangala
150,000
150,000
145,000
145,000
145,000
145,000
140,000
140,000
Bhagyam
20,000
20,000
30,000
40,000
40,000
40,000
40,000
40,000
Aishwarya
5,000
10,000
10,000
10,000
15,000
20,000
20,000
20,000
10,000
10,000
10,000
10,000
210,000
215,000
210,000
210,000
Mangala EOR
Total
175,000
180,000
185,000
195,000
22
EOR to extend plateau production

CIL is expected to achieve plateau production in MBA fields of 210,000bopd by leveraging
normal water-flooding techniques. This is likely to last for 3-4 years, and thereafter a natural
decline will set in. The company is planning to implement enhanced oil recovery (EOR)
techniques such as polymer flooding and Alkali surfactant Polymer (ASP) flooding in order to
extend plateau production by another 3-4 years. The first phase of the pilot project has been
successfully completed. Based on encouraging results from the polymer pilot project, the
company will submit an FDP to the JV for a full field implementation of the polymer flooding
technique in the field. Mangala is expected to show decline from its peak production of
150,000bopd in H2FY14. However, EOR implementation will begin only in FY15. We expect
Mangala EOR to produce at the rate of 10,000bopd in the first year and gradually ramp-up
further to offset the decline in Mangala field. Consequently, we assume plateau production of
around 210,000bopd from MBARS fields to last for 6 years from FY15 through FY20.
MBARS production profile

80
70
60
50
40
30
20
10
Mangala
Bhagyam
Aishwarya
FY40E
FY38E
FY36E
FY34E
FY32E
FY30E
FY28E
FY26E
FY24E
FY22E
FY20E
FY18E
FY16E
FY14E
FY12A
FY10
EOR
The evaluation of other discoveries is currently underway with a view to optimising

development. A pilot hydraulic fracturing programme for testing the potential of the Barmer Hill
formation is planned, subject to approval from the government. The pilot programme will allow
evaluation of appropriate cost-effective technology for the fully optimised development of this
low permeability oil resource base. While a declaration of commerciality for the Barmer Hill was
submitted to the Government of India in March 2010, a draft FDP is under discussion with
ONGC. However, the company plans to monetize the other discoveries to meet the upper end
of its guidance of exit rate of 215,000bopd.
23

MBA + EOR
FY12A
FY13E
FY14E
FY15E
FY16E
FY17E
FY18E
FY19E
FY20E
46.9
61.8
68.3
75.6
77.0
77.0
77.0
77.0
76.9
115.0
111.5
110.0
90.0
90.0
90.0
90.0
90.0
90.0
10%
12%
12%
12%
12%
12%
12%
12%
12%
103.5
98.1
96.8
79.2
79.2
79.2
79.2
79.2
79.2
Gross revenues (USD bn)
4.85
6.06
6.61
5.99
6.10
6.10
6.10
6.10
6.09
Exchange rate (Rs/USD)
48.0
54.5
53.0
51.0
49.0
49.0
49.0
49.0
49.0
Gross revenues (Rs bn)
233.0
330.4
350.2
305.4
298.9
298.8
298.7
298.7
298.6
Direct field opex(Rs bn)
7.9
11.8
12.7
14.0
16.2
18.4
20.6
22.0
23.3
Pipeline opex (Rs bn)
3.4
5.1
5.4
5.8
5.7
5.7
5.7
5.7
5.7
Cess (Rs bn)
16.8
39.0
43.1
47.7
48.6
48.6
69.6
69.6
69.5
Royalty (Rs bn)
54.9
49.6
52.5
45.8
44.8
44.8
44.8
44.8
44.8
Capex (Rs bn)
49.1
17.9
22.5
17.8
5.5
5.5
5.5
5.5
5.5
172.2
123.3
136.2
131.1
120.8
123.0
146.1
147.5
148.8
Profit petroleum (Rs bn)
60.8
207.1
214.0
174.4
178.1
175.8
152.6
151.2
149.8
Government's share of profit petroleum (Rs bn)
12.2
41.4
64.2
52.3
71.2
87.9
76.3
75.6
74.9
FY12A
FY13E
FY14E
FY15E
FY16E
FY17E
FY18E
FY19E
FY20E
Cumulative net cash income (Rs bn)
153.0
259.1
359.6
442.4
509.8
566.7
617.2
667.2
712.7
Cumulative investment (Rs bn)
151.6
164.1
179.9
192.3
196.2
200.0
203.9
207.8
211.7
Investment multiple
1.01
1.58
2.00
2.30
2.60
2.83
3.03
3.21
3.37
Govt.'s share of profit petroleum for the next year
20%
30%
30%
40%
50%
50%
50%
50%
50%
Gross production (mmbbl)

Brent price (USD/bbl)
Discount to Brent
Crude price realization (USD/bbl)
Total cost to be recovered (Rs bn)
Investment multiple calculation On operators share
24
Cairn only pure play on crude in Indian E&P space

CIL only pure play on crude in Indian E&P space
7000
400
350
300
250
200
150
100
50
0
6000
5000
4000
3000
2000
Underperformance of
stock due to concerns
on production
Overhang of Cairn
Vedanta deal
1000
Brent crude (Rs/bbl)
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Cairn India
CIL performance vis--vis Brent
Jan-13
Sep-12
May-12
Jan-12
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Cairn India
160
140
120
100
80
60
40
20
0
Underperformance of
stock due to concerns
on production
Overhang of Cairn
Vedanta deal
Sep-11
400
350
300
250
200
150
100
50
0
Brent crude ($/bbl)
CIL is the only company in the oil & gas space in India that offers a pure play on crude oil prices.
With the exception of a period between January 2011 and October 2011 (Cairn-Vedanta deal
overhang), the stock has more or less shown high correlation with crude prices in dollar and
rupee terms. CIL touched new highs in February and March this CY12 when crude prices rallied
to around $125/bbl on account of geo-political tensions between Iran and the US/Israel and it
fell when crude price crashed to $90/bbl in Jun12. Since then crude prices have corrected
upwards from those levels by 20-25%. However, amid concerns of production from Rajasthan
block, the co-relation seems to have broken in last 4-5 months. We expect, stock to move
upwards gradually as these concerns are taken care of with commencement of production from
Aishwarya and ramp-up of Bhagyam. For FY14 and FY15, we are assuming a crude price of
$110/bbl and $100/bbl and crude price of $90/bbl in the long-term.
Assumptions
FY2012A
FY2013E
FY2014E
FY2015E
Long term
Brent crude ($/bbl)
115.0
111.5
110.0
100.0
90.0
CIL realization ($/bbl)
103.5
98.1
96.8
88.0
79.2
48.0
54.5
53.0
51.0
49.0
Rs/$
25

As of now, CIL maintains all its revenue in dollars, since it is not allowed to keep the same in
rupee. The company converts its dollars into rupees for expenses it incurs in rupees. Cairn
Energy Hydrocarbons Ltd (UK) and Cairn Energy India Pty Ltd (Australia), the two foreign
subsidiaries of CIL, have a 35% stake each in Rajasthan Block.
Currently, CIL is reorganising its group companies to bring all assets under the direct ownership
of CIL, instead of through foreign subsidiaries. Once this objective is achieved, we believe that
the exchange rate will also have a material impact on CILs earnings. At present, the exchange
rate fluctuation does not have any impact on the companys cash-flow.
Infrastructure being augmented to support higher production levels

Initially, Mangala Processing Terminal (MPT) was planned with a capacity of 205,000bopd for
processing crude from Mangala, Bhagyam, Aishwariya and other satellite fields, with provisions
for expanding and processing more crude dependent on the blocks resource potential. MPT
consisted of four processing trains: Train-1, Train-2, Train-3 and Train-4, with capacities of
30,000bopd, 50,000bopd, 50,000bopd and 75,000bopd, respectively. Trains-1, Two-2 and Train3 have already been commissioned. However, in the light of the fact that Rajasthan Block can
support production rates of 215,000bopd in the near term, the integrated development plan for
MPT as well as the pipeline are being implemented, along with the requisite infrastructure, for
supporting such production levels, which is the peak production that CIL expects to achieve in
the near term from MBA fields in Rajasthan Block. Currently, MPTs integrated production
facilities support production in excess of 175,000bopd in line with the unified blocks off-take
capability.
Rajasthan Block Infrastructure
To transport crude from Barmer, CIL has a 590-km heated and insulated pipeline from Barmer
(Rajasthan) to Salaya (Gujarat). The pipeline will be further extended by 80km from Salaya to
Bhogat, on the west coast of Gujarat, in H1CY13. Once the entire 670km pipeline from MPT to
Bhogat becomes operational, the company will have access to over 75% of Indias refining
market. Currently, the Barmer-Salaya pipeline section has a capacity of 175,000bopd. The
technical/pilot trials for the debottlenecking of the pipeline to enhance capacity were
successfully completed and the report has been submitted to the JV. The JV has approved the
DRA budget and is thus aligned on the process. In line with the application of DRAs, the pipeline
can handle volumes beyond the currently approved FDP rates.
26
Successful execution track record

Ravva Field, located off the coast of Andhra Pradesh, started oil and gas production in 1993.
Jointly owned by ONGC, Videocon and Ravva Oil, CIL became an operator of the block in 1996
after it acquired Command Petroleum. The block, with initial estimated crude reserves of
around 100mmbbls, has till date produced more than 251mmbbls of oil and 314bcf of gas,
which is more than double the initial estimates. It is expected to achieve an ultimate recovery
rate of about 60%. It has achieved a plateau rate in excess of 50,000bopd for more than nine
years. Incidentally, the field direct operating cost for Ravva block is among the lowest in the
world. The blocks prolific performance may be attributed to CILs reservoir management
strategy and technical understanding.
Impressive performance by Cairn in Ravva field

100
80
60
40
20
Oil (kboepd)
FY2013
FY2012
FY2011
FY2010
FY2009
CY2007
CY2006
CY2005
CY2004
CY2003
CY2002
CY2001
CY2000
CY1999
CY1998
CY1997
CY1996
CY1995
CY1994
CY1993
Gas (mmscfd)
27

Cambay Block (CB/OS-2), located in Western India, consists of three fields namely, Lakshmi,
Gauri and the CB-X development area, with CIL as the operator with a 40% stake. After
discovering gas in Lakshmi Field in 2000, CIL subsequently began production. This is one of the
fastest discovery-to-production feats ever achieved in the country. Production of gas in Gauri
Field started in 2004, while crude oil production commenced in 2005. Also, the application of
advanced geophysical tools, which helped map thin oil sands that are beyond normal seismic
resolution capability, have transformed CB/OS-2 block from being a predominantly gas field to
an oil field through the discovery of an oil leg. Till date, Cambay block has produced 14mmbbls
of co-mingled oil (crude and condensate) and 205bcf of gas.
Cambay production over the years

10000
120
8000
100
80
6000
60
4000
40
2000
20
Gas (mmscfd) (RHS)
FY2013
FY2012
FY2011
FY2010
FY2009
CY2007
CY2006
CY2005
CY2004
CY2003
0
CY2002
Oil (bopd)
CIL operates Rajasthan Block under a PSC signed in 1994. Cairn Energy Plc., the parent company
of CIL, initially acquired a 10% equity interest in the block in 1997 from Shell, and gradually
increased the stake in the block to 50%. By 2002, Shell decided to exit the block, as no
significant commercial discoveries were made. Cairn agreed to a three-year extension of the
exploration period with the Government of India, which ended in 2005. After spending almost
USD100mn, CIL discovered Mangala in 2004, the largest onshore oil discovery in India in more
than 20 years, which was followed by Bhagyam and Aishwarya. The company managed to
commence oil production from Rajasthan in less than 6 years from the day of the discovery of
the well as against the world average of 7 years. Rajasthan Block has seen a consistent increase
in its reserve estimates. It currently stands at an STOIIP of around 7.3bnboe.
The consistent execution track record of the company reinforces our faith that the company will
be able to achieve its guidance on its various production and exploration blocks, though subject
to it securing support from the government and JV partners in various blocks.
Robust cash-flow can sustain further exploration and development plans

CIL, along with its JV partner, ONGC, has spent USD 3.7bn till date on exploration and
development of Rajasthan Block. The company expects to spend USD 2.0bn over next two years,
out of which 60% is expected to be expended on Rajasthan block (30% on exploration and 30%
on development) and remaining 40% on other assets and new ventures. Going forward,
production from MBA fields will generate USD 12bn over FY13-20, which will be sufficient to
fund further exploration and development plans at Rajasthan, including Barmer Hill, smaller
satellite fields and further exploration upsides. The company has also given guidance on a 20%
28

dividend payout, which we believe is fair in view of the fact that the company will be generating
a significant amount of cash in the future.
CILs cash-flow going forward

100
80
60
40
20
FY20E
FY19E
FY18E
FY17E
FY16E
FY15E
FY14E
FY13E
Cash Flow (Rs bn)

CILs exploration assets

After tasting success at Ravva, Cambay and Rajasthan, CIL now looks forward to becoming a
larger player in the exploration space, which will transform it from being a single-asset player
into a full-fledged exploration company. CIL has participating interests in 10 blocks in four
strategically focused areas: one in Rajasthan, two on the west coast, six on the east coast,
including one in Sri Lanka and one in South Africa. Out of these, eight blocks, including the three
that are into production, are operated by CIL. Exploration activities are at different stages in
some of these blocks. CIL, through its participation in previously concluded NELP rounds, has
been able to garner a major presence on Indias east coast, which is believed to be a prolific
basin for exploration. The company continues to optimise its exploration portfolio by adding
new prospective blocks and relinquishing low-grade blocks after full evaluation and completion
of work programme, thereby increasing its net unrisked potential resource base. Any positive
news-flow with respect to the companys exploration success will result in a long-term re-rating
of the stock.
29

Cairns exploration assets
Oil & Gas
blocks/fields
Area
Participating
interest
Remarks
Operated block
RJ-ON-90/1
Exploration
Barmer Basin
CB-OS/2 Exploration Cambay Offshore
70%
40%
PGKM - 1 Ravva block
Krishna-Godavari
22.5%
KG-ONN-2003/1
Krishna-Godavari
Onshore
49%
KG-OSN-2009/3
Krishna-Godavari
Offshore
100%
MB-DWN-2009/1
Mumbai
Offshore Basin
100%
PR-OSN-2004/1
Palar-Pennar
Basin Offshore
35%
SL 2007-01-001
Mannar Basin
100%
Block 1*
Orange Basin, SA
60%
Geological and geophysical evaluation of the exploration potential in the

block is ongoing. Detailed evaluation work has resulted in an increase in
the exploration upside, with the prospective resource base now
estimated at 3.1bnboe in place from an earlier estimate of 2.5bnboe.
The risked prospective resource has more than doubled from
250mmboe to 530mmboe.
Seismic mapping of deeper exploration potential is ongoing.
Deeper prospects in the block have been identified, and drilling of an
exploration well is planned for 2013.
Following the discovery of oil and gas in the well Nagayalanka-SE-1, a
two well appraisal programme has been planned and approved by the
JV. The tendering for rig and the services is ongoing with a plan to spud
in Q1FY14. Current estimates of the gross in place resource for both the
discoveries are 550mmboe.
Force majeure had been declared due to the denial of permission to
carry out exploration activity in the restricted area by the Ministry of
Defence. CCI in its meeting held in Mar13 has given clearance for
exploration activity in small portion of the block.
Force majeure has been declared by Cairn India due to denial of defence
clearances for further exploration activity. GoI has granted conditional
approval for carrying out exploration activity; however discussions are in
progress for unrestricted access.
Force majeure has been declared due to the denial of permission to drill
in the restricted area by the Department of Space. GoI has granted
conditional approval for carrying out exploration drilling; however
discussions are in progress with the GoI for unrestricted access.
Pursuant to the conduct of phase 2 exploration in Sri Lanka, Cairn Lanka
Pvt Ltd, a wholly owned subsidiary of Cairn India Ltd, acquired 600sqkm
of 3D seismic in Block SL 2007-01-001 in early 2012 and spud its fourth
exploration well in the block on 2 February, 2013. The well encountered
multiple thick high quality reservoir sands, which were not hydrocarbon
bearing. The data from this well along with the results of the prior two
discoveries are being integrated to fully understand the future block
potential.
A farm-in agreement has been signed with PetroSA on 16 August, 2012
in the Block-I located in Orange basin, South Africa. The block covers an
area of 19,922 sq km. The assignment of 60% interest and operatorship
has been granted by the South African regulatory authorities. Other
regulatory approvals are on schedule. The tendering for the 3D seismic
data has been completed and operations are expected to begin shortly.
Non-operated block
KG-DWN-98/2
Krishna-Godavari
Deep Water
10%
Cairn India is in the final stages of executing the farm out to its JV
partner, ONGC. GoI approvals have been obtained. This divestment of
insignificant equity is part of Cairn Indias process of continuous portfolio
optimisation.
Source: Company, Violet Arch Research, *subject to South African regulatory approvals
30
Key Risks and Concerns

Policy-Regulatory Risks / Uncertainties
Particulars
Crude price
Royalty
Cess
Cost Petroleum
Profit Petroleum
Tax Holiday
Contract period
Gas price hike
Profit sharing model to

revenue sharing model
Allowing exploration in
producing blocks
Defense ministry declaring

certain exploration areas as
No-Go areas.
Comments
Arrived at a specific formula approved by the government in the PSC. Discount to brent crude ranges
in between 10% to 15%.
It is 20% of well-head value. However, it works out to 15-16% of realizaed value and may vary slightly
depending on governement calculation of post well-head value.
Cess increased by governement in budget FY13 from Rs 2500/MT to Rs 4500/MT. There is a chance of
hike in cess going forward. However, too high a hike or too frequent a hike in cess may also impact
ONGC and Oil India to a large extent with their crude realization being determined by government.
Cairn is allowed to recover its capex and production costs (upto 100% of revenues) before sharing any
profit petroleum. However, government may disapprove some capex or costs upon its own
assessment. Government has earlier rejected USD 238mn of capex by Cairn during its previous
exploration phase in Rajasthan block.
Post all the cost recovery, Profit Petroleum sharing with the government as is calculated as per the
investment multiple. If government disapproves some costs, the share of profit petroleum of Cairn
may decrease.
Seven year tax holiday form the start of production. However Cairn continues to pay Minimum
Alternate Tax (MAT). Also, any gas commercialization may not come under tax holiday as natural gas is
not considered as mineral oil.
The contract is valid upto May 2020 and can be extended on mutual agreement but terms may be
changed by DGH while giving approval for extension.
As per recommendations of Rangarajan panel, the government may look into hiking the price of gas by
linking it to a price arrived upon by taking into consideration gas prices across various sources. Cairn is
looking forward to monetize its gas discoveries in Rajasthan block. However, Rajasthan being a preNELP block gas price will be determined by government. For any discovery from NELP blocks awarded
to Cairn, gas price hike would be a positive step.
Under the existing production sharing contract (PSC), the contractor first recovers his expenditure
before sharing profit. What is under consideration is production-linked payment, which is said to be
more transparent and will have less intervention in routine exploration and development activities.
Under this proposal, oil companies would have to pay the Government an agreed amount, depending
on the level of output, and not on the investment in the exploration block. The existing production
from Rajasthan block comes under profit sharing model. However, with Cairn embarking once again
on exploration programme in Rajasthan block, any new commercial discovery may come under
revenue sharing model.
The petroleum ministry has allowed exploration in mining lease (producing fields) areas but
exploration costs will be allowed for cost recovery only if a discovery is technically and commercially
viable. The contractor will therefore carry out further exploration activities at its risk in the Mining
Lease area, after the expiry of the exploration period. Positive for the whole sector. Cairn has already
embarked on a 3 year exploration programme in Rajasthan block to tap 3.2bnboe of reserves of
exploration upside. However, the costs will be recoverable only on the establishment of commerciality
of discovery.
Force majeure had been declared in Cairn's KG-OSN-2009/3, MB-DWN-2009/1, PR-OSN-2004/1 blocks
due to the denial of permission to carry out exploration activity in the restricted area by the Ministry
of Defence. CCI in its meeting held in Mar13 has given clearance for exploration activity in small
portion of the KG-OSN-2009/3 block. However, further clarity is awaited on the rest of the blocks.
The government gave its approval for the Cairn-Vedanta deal only after Cairn agreed to make royalty
cost recoverable in the Rajasthan block. Prior to this, as per a previous agreement, the entire royalty
burden was being borne by ONGC which owns a 30% stake in the block. The government also forced
Cairn to withdraw a court case against cess levied in the Rajasthan block which it was paying under
protest.
Cairn-Vedanta deal
31
Delay in approvals from ONGC and DGH

The CIL management expects to hit exit rate of 215,000bopd in FY14 post-commencement of
production in Aishwarya and ramp-up in Bhagyam. Revised FDPs for Bhagyam and Aishwarya
are yet to be submitted, which would help the company reach beyond 215,000bopd production
target in the near term. In our model, we have assumed production from Aishwarya to touch
10,000bopd in Q2FY14 and 20,000bopd in Q2FY15 and production from Bhagyam to touch
40,000bopd in Q4FY14. Any further delay could result in delayed cash-flows for the company.
Further, CIL has expects to monetize the other smaller discoveries in Rajasthan block to meet its
guidance rate of 215,000bopd in FY14. Any delay in seeking the regulator and JV partners
approval will push back the companys cash-flows, thereby eroding investor confidence.
Falling crude prices

Being a direct play on crude oil prices, CIL is exposed to crude price volatility. In our valuation,
we have assumed a long-term brent crude price of $90/bbl. Any correction in crude prices
beyond that level will affect the companys profitability and share price.
CIL valuation sensitivity analysis

Long-term
USD-INR
rate
assumption
80
90
100
110
120
45
318
345
377
409
441
47
326
355
387
420
453
49
334
364
398
432
466
51
338
373
408
443
478
53
346
382
418
454
491
FY14 EPS sensitivity analysis

FY14 USDINR rate

assumption
100
105
110
115
120
49
42.5
45.3
48.0
50.8
53.5
51
44.3
47.2
50.1
52.9
55.8
53
46.1
49.1
52.1
55.1
58.1
55
47.9
51.0
54.1
57.2
60.3
57
49.7
52.9
56.2
59.4
62.6
Increase in statutory levies by government

In the Budget FY13, the government increased the cess from Rs 2500 per tonne to Rs 4500 per
tonne, which impacted CILs profitability by USD6/bbl. The move impacted FY13 EPS by around
Rs4.2 and valuation by about 8%. To be on conservative side we have assumed cess to increase
by Rs 2000/tonne after every five years which resulted in CIL valuation of Rs 364/share as
compared to Rs 380/share if these is no increase in cess further.
Failure to convert exploration assets into unrisked potential reserves

Currently, CIL is considered a single-asset player (Rajasthan Block), and any failure to convert its
current exploration portfolio into unrisked potential resource base could lead to erosion of
investor confidence in the company.
32

Also Cairn has embarked upon a 3-year exploration programme in Rajasthan block to tap the
~3.1bnboe of prospective reserves from exploration upside. Any failure to convert these
exploration upsides into production would be a negative trigger for the stock as the exploration
costs for these are cost recoverable only upon commercial and technical success of the
discovery.
Mis-use of strong cash-flow of CIL by Vedanta

Over the years Cairn India has done well in exploration and production space through a
tremendous performance in Rajasthan, Cambay and Ravva. But the change in ownership has
created doubts in the investors minds considering the inexperience of Vedanta in oil and gas
sector as well as chance of mis-use of strong cash-flow of CIL to repay debt of its other group
companies in a way that it may not be beneficial to minority shareholder. However, Vedanta has
sought to allay these fears by stating to fulfill Cairn Indias commitments towards exploration
and production activities in India, Sri Lanka.
33
Valuation
On the back of a further ramp-up of Bhagyam and Aishwarya, CILs production is expected to
reach 195,000bopd by end-FY14 from the current rate of 175,000bopd. Rajasthan Blocks nearterm potential is estimated at 215,000bopd, which is expected to come largely from MBA fields.
The long-term potential, as per the management guidance, is 300,000bopd, which is expected
from monetization of Barmer Hill and 19 discoveries as well as exploration upsides. We value
MBA fields on a NAV basis and other reserves on an EV/boe basis in order to arrive at a target
price of Rs 367 per share, which reflects an EV/boe of $9.3/bbl.
Assumptions for MBA

MBA production
Production to be 187,000 bopd in FY14; 207,250 bopd in FY15 and ~210,000 bopd through FY16-FY20
MBA - EOR
To start in mid-FY15 in Mangala, in FY16 in Bhagyam and in FY17 in Aishwarya
Brent crude price
USD 110/bbl in FY14 and USD 100/bbl in FY15 and USD 90/bbl for long-term
Discount to Brent crude
12%
Exchange rate
Rs 53/USD in FY14; Rs 51/USD in FY15 and Rs 49/USD for long-term
Capex
Direct field opex
Pipeline opex
Royalty
Cess
WACC
USD 2.0 bn over FY14 and FY15

USD 3.5/bbl
USD 1.5/bbl
15.5% of Revenues
Rs 4500/tonne for through FY13-17 and hiked by Rs 2000/tonne thereafter every five years
10%
CIL's cash-flows from MBA (Rs bn)

FY14E
FY15E
FY16E
FY17E
FY18E
FY19E
FY20E
200.2
177.2
159.3
147.6
155.7
156.2
156.6
Production costs
12.7
13.9
15.3
16.8
18.4
19.3
20.3
Cess + Royalty
66.9
65.5
65.4
65.4
80.1
80.1
80.0
Capex
15.7
12.4
3.9
3.9
3.9
3.9
3.9
Revenues
Pre-tax cash-flows
104.9
85.4
74.8
61.5
53.4
52.9
52.4
Tax
20.0
15.1
11.2
8.5
6.9
6.8
10.8
Post-tax cash-flow
84.8
70.4
63.6
53.0
46.5
46.1
41.6
NAV
383.1
No of o/s shares (mn)
1908
NAV per share (Rs/share)
201
CIL valuation
Block
MBA + EOR
Barmer Hill
Exploration Upside Potential
Ravva
Cambay
Total
Debt
Cash & Cash Eq
Cairn India
Net 2P/ Recoverable

Reserves (mmbbl)
Rs/share
(USD/boe)
620
116
371
14
4
1,125
-
201
15
48
3
1
268
0
99
367
12.6
5.0
5.0
8.8
8.8
9.3
-
34

One-year forward PE
One-year forward PBV

550
600
450
400
350
300
250
200
150
100
50
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Cairn
PER - 7
PER - 5
PER - 8
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
500
Cairn
PBV - 1.0
PER - 6
PER - 9
One-year forward EV/EBITDA
PBV - 0.6
PBV - 1.2
PBV - 0.8
PBV - 1.4
One-year forward EV/BOE
1000000
15000
800000
13000
11000
600000
9000
400000
3000
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
5000
Cairn (Rs Mn)

EV/EBITDA-6
EV/EBITDA-4
EV/EBITDA-7
EV/EBITDA-5
EV/EBITDA-8
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
7000
200000
Cairn (USD Mn)

EV/BOE-10
EV/BOE-6
EV/BOE-12
EV/BOE-8
EV/BOE-14
35
Financial Outlook
The production from the MBA reached 169,000bopd in FY13 from levels of 125,000bopd in FY12
resulting in revenues of Rs 176.0bn in FY13, showing a 48% growth over that of FY12 with
realization at $103.5/bbl in FY12 and $98.1/bbl in FY13. However, the revenues are expected to
remain stagnant at in FY14 though there is 10% jump in production to 187,000bopd in FY14 due
to increase in governments share of profit petroleum at 30% in FY14 as compared to 20% in
FY13. EBITDA and PAT are expected to show a decline 7% and 14%, respectively due to the same
reason.
Revenue, EBITDA and PAT

200
(Rs bn)
150
100
50
0
FY12A
FY13E
Revenue
FY14E
EBITDA
FY15E
PAT
In FY13 governments share of profit petroleum stood at 20% which is set to increase to 30% in
FY14 as higher crude prices for last two years has resulted in significant revenue increase and
consequently resulted in faster cost recovery from MBA fields. Consequently, EBITDA margins
will come down to 59% from 63% in FY13 and PAT margins would be 48% in FY14 as compared
to 55% in FY13.
EBITDA and PAT margin

90
80
70
60
50
40
30
20
10
0
FY12A
FY13E
EBITDA Margin
FY14E
FY15E
PAT Margin
36
Company Overview
Incorporated in 2006 by Cairn Energy Plc., Cairn India Ltd. (CIL) is engaged in oil & gas
exploration and production activities in India. CIL has a stake in 10 blocks (nine in India and one
in Sri Lanka), of which three blocks, namely, Rajasthan, Ravva and Cambay are currently under
production, while the remaining are exploratory blocks. Rajasthan Block, the flagship block of
Cairn India, is currently producing at the rate of 175,000bopd. While it is expected to achieve
peak production of 240,000bopd in the near term, production in the long term is likely to be
300,000bopd, subject to regulatory approvals. At the envisaged peak production of
240,000bopd in the near term, Rajasthan Block will contribute around 30% of Indias current
crude production. Ravva and Cambay are currently producing at the rate of 36,942boepd and
8,242boepd, respectively. As of now, Vedanta Group holds a 58.8% stake, while Cairn Energy
has an 18.3% stake in CIL.
Cairns asset base
Cairns hydrocarbon reserve

Gross proved and probable
hydrocarbons initially in place
(mmboe)
2,090
-
Gross proved and probable

reserves and resources
(mmboe)
636
308
Net proved and probable

reserves and resources
(mmboe)
445
216
2,088
178
125
Ravva Fields
690
70
16
CB/OS-2 Fields
182
13
Other Fields
792
426
99
5,842
1,631
906
Rajasthan MBA Fields

Rajasthan MBA EOR
Rajasthan Block Other Fields
Total
37
Financial Summary
Income statement
Cash-flow statement
Y/E 31 Mar (Rs bn)
FY12
FY13E
FY14E
FY15E
Net Sales
118.6
176.0
170.4
150.1
Profit before Tax
Growth (%)
15.4
48.4
(3.2)
(11.9)
DDA
17.7
19.8
23.6
25.0
Total expenditure
27.1
44.2
48.4
53.4
Other Items
(9.9)
(6.3)
(6.2)
(5.5)
EBITDA
91.5
131.8
122.1
96.7
Change in Working Capital
(0.0)
26.3
4.1
8.2
Margins (%)
77.2
62.5
58.9
53.0
Direct Taxes
Depreciation
14.4
19.8
23.6
25.0
Cash Flow from Operations
EBIT
77.1
112.0
98.4
71.7
Capital Expenditure
Margins (%)
65.0
53.1
47.5
39.3
Change in Investments
Other income
9.4
6.3
6.2
5.5
Cash Flow from Investing

Equity Raised
Interest
PBT
Total Tax
2.3
0.0
0.0
0.0
84.2
118.3
104.6
77.2
Y/E 31 Mar (Rs bn)
Debt Raised / Repaid
4.9
3.1
5.3
4.0
PAT
79.4
115.1
99.4
73.1
Cash Flow from Financing
Margins (%)
66.9
54.6
47.9
40.1
Net Change in Cash
EPS
41.6
60.4
52.1
38.3
Balance sheet
Dividend Paid and tax on dividend
FY12
FY13E
FY14E
FY15E
84.2
118.3
104.6
77.2
(21.3)
(3.1)
(5.3)
(4.0)
70.7
155.0
120.9
100.9
(29.6)
(22.0)
(52.7)
(48.0)
2.6
6.3
6.2
5.5
(27.3)
(15.6)
(46.4)
(42.5)
0.6
0.0
0.0
0.0
(15.5)
(12.5)
(0.0)
(0.0)
0.0
(26.9)
(23.3)
(17.1)
(15.2)
(39.4)
(23.3)
(17.1)
28.2
99.9
51.2
41.3
FY12
FY13E
FY14E
FY15E
Financial ratio
Y/E 31 Mar (Rs bn)
FY12
FY13E
FY14E
FY15E
Source of Funds
Y/E 31 Mar
Per Share Data (Rs/share)
Share Capital
19.1
19.1
19.1
19.1
EPS Basic
41.6
60.4
52.1
38.3
0.1
0.1
0.1
0.1
EPS Diluted
41.6
60.4
52.1
38.3
Reserves & Surplus
463.7
551.9
628.1
684.1
CEPS
49.2
70.8
64.5
51.4
Networth
482.9
571.1
647.2
703.3
BVPS
253.1
299.4
339.3
368.6
Total Debt
12.5
0.0
0.0
0.0
DPS
0.0
12.1
10.4
7.7
Growth Ratios (%)

Sales
15.4
48.4
(3.2)
(11.9)
PAT
25.3
45.1
(13.7)
(26.4)
ESOPs
Deferred tax Liability

Total
6.8
6.8
6.8
6.8
502.3
578.0
654.1
710.1
Application of Funds
Net Fixed Assets
134.5
136.6
165.7
188.6
Profitability Ratios (%)
Goodwill
253.2
253.2
253.2
253.2
EBITDA Margin
77.2
62.5
58.9
53.0
18.4
18.4
18.4
18.4
Net Profit Margin
66.9
54.6
47.9
40.1
0.1
0.1
0.1
0.1
RoCE
15.6
20.6
15.9
10.7
RoE
16.4
20.2
15.4
10.4
PE
6.7
4.6
5.4
7.3
PE to cash earnings
5.7
4.0
4.3
5.4
P/BV
1.1
0.9
0.8
0.8
EV/EBIDTA
5.2
2.8
2.6
2.8
EV/Sales
4.0
2.1
1.8
1.8
0.0
0.0
0.0
0.0
34.1
Investments
Deferred Tax Assets
Current assets, loans & adv
Inventories
4.4
3.6
4.0
4.4
Sundry debtors
15.0
28.9
28.0
24.7
Cash and bank balances
Valuation Matrix (x)
70.1
170.0
221.2
262.5
Other current assets
0.4
0.4
0.4
0.4
Loans and advances
33.8
14.1
13.6
12.0
7.6
33.8
36.9
40.6
Leverage Ratios (x)

Debt/Equity Ratio
Less: Current Liab & provisions

Current liabilities
Provisions
19.9
13.5
13.5
13.5
Net current assets
96.1
169.7
216.8
249.8
Misc Expenditure
0.0
0.0
0.0
0.0
502.3
578.0
654.1
710.1
Total
Interest Coverage Ratio
38

Cairn India IC

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Institutional Research

Cairn India Ltd.

VIOLET ARCH Research

First Page ................................................................................................ 3

Resource-rich Rajasthan fields ............................................................. 19

Financials and Valuation

Cairn India Ltd - Company Report

VIOLET ARCH Research

Cairn India Ltd.

Equity Shares o/s (mn)

Market Cap (Rs mn)

Market Cap (USD mn)

Resource-rich Rajasthan fields

Stock performance (%)

Rajasthan Block production to rise by 22% by end of FY15

Shareholding pattern (%)

Strong cash-flow to sustain further exploration and development plans

Cairn India Ltd

Source: Company, Violet Arch Research

Cairn India Ltd - Company Report

VIOLET ARCH Research

Source: Violet Arch Research

Direct field opex of $3.5/bbl and pipeline opex of $1.5/bbl.

DDA expenses at $9/bbl.

Royalty of 15.5% on revenues.

Cairn India Ltd - Company Report

VIOLET ARCH Research

EOR in Mangala to be implemented in FY15.

Field-life of MBA fields till FY41.

Cairn India Ltd - Company Report

VIOLET ARCH Research

CILs production from various blocks

Source: Violet Arch Research

Per boe analysis of Rajasthan Block

Govt. share of profit petroleum

Direct field opex + Pipeline opex

Cairn India Ltd - Company Report

VIOLET ARCH Research

Source: Company, Violet Arch Research

Source: Violet Arch Research

Cairn India Ltd - Company Report

VIOLET ARCH Research

1) Delay in approvals from the

3) Falling crude prices leading to

1) As of now, Cairn is considered

Source: Violet Arch Research

Cairn India Ltd - Company Report

VIOLET ARCH Research

Rajasthan resource potential

~2.5 Billion boe in

1 The independent estimates of Reserves

VIOLET ARCH Research

Cairn reserve upgrades over the years

Source: Company; VioletArch Securities

CAIRN INDIA ANNUAL REPORT 2010-11

1 The independent estimates of Reserves and Contingent Resources

Rajasthan resource base and vision for growth

2 Top 35 prospects audited by D&M risked resource 178 mmbbls

Cairn India Ltd - Company Report

VIOLET ARCH Research

Barmer Hill + 19 discoveries

Source: Violet Arch Research

Rajasthan Block production to increase by 22% by end of FY15

MBA production (bopd)