India Equity Research

Oil, Gas and Services

Company Update

CAIRN INDIA

Uncertainties cloud attractive long-term investment case Over the past nine months, since Vedanta announced plans to acquire majority stake in Cairn India (CAIR), shares of CAIR have moved sideways while Brent is up 50%. Given the lackluster performance, the Catch-22 situation for investors is to either: (a) hold the stock from a long-term view, given the underlying high-quality asset base; or (b) quit, factoring in a steep discount to SOTP that makes the stock unattractive. We have quantified the impact of what-ifs and conclude that CAIRs shares will remain rangebound in the near term, whilst continuing to offer upside in the long term.
EDELWEISS 4D RATINGS Absolute Rating Rating Relative to Sector Risk Rating Relative to Sector Sector Relative to Market HOLD Performer Medium Overweight Reuters: CAIL.BO Bloomberg: CAIR IN

May 12, 2011

Base case SOTP of INR 370/share

Our SOTP (end March 2012) stands at INR 370/share (10% upside from CMP), underpinned by core asset value of INR 320/share and exploration upside of INR 50/share.

Note: Please refer last page of the report for rating explanation

MARKET DATA CMP 52-week range (INR) Share in issue (mn) M cap (INR bn/USD mn) : : : : INR 336 372 / 266 1,901.9 639 /14,280 4,346.1

In a bear scenario, INR 63/share impact due to royalty, cess issue

Our SOTP comes down by INR 63/share if royalty becomes cost-recoverable and CAIR continues to pay INR 2,575 as cess.

Avg. Daily Vol. BSE/NSE (000): SHARE HOLDING PATTERN (%)

Potential 10% discount to SOTP with Vedanta coming on board

Since 2005, Vedanta has, on an average, traded at a 20-25% discount to BHP Billiton and Rio Tinto, but over the past three years the discount to BHP has dipped to 9%. CAIR could trade at a discount of ~10% near term, in our view.

Promoters* MFs, FIs & Banks FIIs Others * Promoters pledged shares (% of share in issue) PRICE PERFORMANCE (%) Stock 1 month 3 months (1.8) 4.4 14.3

: : : : :

62.2 7.2 11.7 18.9 NIL

Gearing to oil price wrecked over past nine months

CAIR has typically seen a strong correlation with crude prices, but over the past nine months, its shares have moved sideways even as Brent prices increased 50%. We believe this disconnect will persist over the near term.

Nifty (3.8) 4.8 8.4

EW O & G Index 0.7 7.1 5.5

Bull case of INR 469/share remains attractive

Our bull case of INR 469/share is driven by: (a) gross production from the Rajasthan block peaking at managements stated vision of 240 kb/d; (b) incremental exploration upside of 150 mmboe from Sri Lanka and KG fields; and (c) long-term oil price of USD 100/bbl.

12 months

Outlook and valuations: Balanced risk-reward; maintain HOLD

We maintain our HOLD recommendation and SOTP of INR 370/share on CAIR, but lower the relative rating to Sector Performer from Sector Outperformer as uncertainties cloud the investment case for the near term.

Financials Year to March Net revenues (INR mn) EBITDA (INR mn) Net profit (INR mn) Diluted EPS (INR) Diluted P/E (x) EV/EBITDA (x) ROAE (%) FY09 14,327 9,098 8,035 4.2 81.9 69.2 2.6 FY10 16,230 9,805 10,511 5.5 62.6 67.4 3.2 FY11E 106,166 87,225 62,008 32.4 10.6 7.2 16.8 FY12E 150,107 124,855 95,235 49.8 6.9 4.5 21.5
Edelweiss Securities Limited

Niraj Mansingka, CFA +91 22 6623 3315 niraj.mansingka@edelcap.com Aditya Suresh +91 22 4063 5478 aditya.suresh@edelcap.com

Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

Oil, Gas and Services

Base case SOTP of INR 370/share
On August 16, 2010, the Vedanta Group (Vedanta) announced plans to acquire 51-60% stake in Cairn India (CAIR) from Cairn Energy Plc. (Cairn Energy), CAIRs majority stakeholder, for a consideration of USD 8.59.6 bn in cash. As per the deal proposal, minority shareholders would get INR 355/share, while Cairn Energy an additional INR 50/share as non-compete fee. We note that the deal was proposed at a time when Brent was roughly ~USD 75-80/bbl versus the current ~USD 110/bbl. Structurally, we believe that long-term oil price assumptions have moved up by USD 5-10/bbl. Consensus fair value range for CAIR is between ~INR 290/share and INR 480/share. Our fair value SOTP for CAIR stands at INR 370/share, underpinned by core asset value of INR 320/share and exploration upside of INR 50/share. However, we believe that the stock will trade at ~10% discount to SOTP over the next 12 months until there is clarity on: (a) cash deployment plans post the Vedanta transaction; and (b) royalty payments. Key assumptions in our base case 1) Rajasthan block a. Production: Gross oil production ramps up to a peak of 210 kb/d by FY13 with 5 years of plateau production. Beyond FY18, we assumed a decline rate of 8%. b. c. We assume royalty is not cost-recoverable. Cess = INR 927/tonne from FY14 (versus current rate of INR 2,575/tonne), basically implying the cess issue (currently under arbitration) is ruled in favour of CAIR. 2) Other blocks a. Ravva: Production decline stopped and plateau production of 31kb/d maintained till FY15 due to a combination of horizontal and infill drilling. b. KG-DWN-98/2: 7 tcf of gross recoverable reserves; production starts in FY17

3) Exploration upside: Risked net reserves = 375 mmboe; average NPV USD 6.3/boe. 4) Oil price: USD 90/bbl long-term; WACC: 11.0%; USD/INR: 46.0.

Chart 1: CAIR bull-bear SOTP break-up

500 400 -2 -5 -10 -13 -18 -50

46

31

16

(INR/sh)

300 200 100 0 271

370

469

Rajasthan Ramp-Up

Cess = INR2575/ton

Lower KG Basin Pdtn

Source: Edelweiss research

Edelweiss Securities Limited 2

Higher Expln Upside

Lower Expln upside

Ravva Plateau Extn

USD 100/bbl Oil

Higher KG Pdtn

Bear Case

USD 80/bbl Oil

Royalty costrecovery

Base Case

Bull Case

Others

Cairn India
Table 1: CAIR bull-bear case SOTP valuations Base case (USD 90/bbl) SOTP Valuation

Bull case (USD 100/bbl) NPV (INR mn) 616,362 23,292 10,387 23,689 125,000 96,588 895,317

Bear case (USD 80/bbl) (INR mn) 7,840 9,176 10,437 75,000 96,588 516,818 NPV (INR/share) 167 4 5 5 39 51 271 336 (19.4)

Block RJ-ON-90/1 (Rajasthan) KG-DWN-98/2 CB/OS-2 Ravva Exploration upside FY12 end net cash Mar-12 SOTP fair value CMP % upside

NPV (INR mn) NPV (INR/share) 471,317 18,108 9,743 15,630 95,000 96,588 706,386 247 9 5 8 50 51 370 336 10.2

NPV NPV (INR/share) 323 12 5 12 65 51 469 336 39.6

317,777

Chart 2: INR 370/share base case SOTP underpinned by Rajasthan block 400

Base SOTP (INR/sh)

320 240 160 247 80 0 50

51

370

Exploration Upside

Rajasthan (peak 210kb/d)

Chart 3: Gross oil production profile from Rajasthan block 250

Gross Oil Pdtn (kb/d)

200 150 100 50 0

FY08

FY10

FY12

FY14

FY16

FY18

FY20

FY22

FY24

FY26

FY28

Base Case
3

KG Basin

Cambay

Ravva

Net Cash

Mangala

Bhagyam

Aishwaraya

Rajasthan Others
Source: Edelweiss research

Edelweiss Securities Limited

FY30

Oil, Gas and Services

Table 2: CAIR oil and gas reserve valuation summary Production Activity

Gas (bcm) Ravva KG-DWN-98/2 CB/OS-2 RJ-ON-90/1 (Rajasthan) Total

Exploration & Appraisal Activity Block RJ-ON-90/1 (Rajasthan) Prospective resources (Rajasthan) Exploration of other blocks Total Gross reserves (mn boe) 1,900 2,500 1,000 2,900

Oil (mmt) 2.4 0.0 0.7 91.7 94.8

O+OEG (mtoe) 3.0 18.4 2.3 91.7 115.4

O+OEG (bn boe) 0.0 0.1 0.0 0.7 0.8

NPV (USD/boe) 17.5 3.4 14.5 17.5 52.9

NPV (USD bn) 0.4 0.5 0.2 11.8 12.9

NPV (INR bn) 16 18 10 471 515

NPV (INR sh) 8 9 5 247 270

0.7 20.4 1.7 0.0 22.9

Stake (%) 70% 70% 100% 80%

Net reserves (mn boe) 1,330 1,750 1,000 2,330

Risk (%) 8% 10% 10% 10%

Net reserves (mn boe) 100 175 100 375

NPV (USD/boe) 10.0 5.0 5.0 6.3

NPV (USD bn) 1.0 0.9 0.5 2.4

NPV (INR bn) 40 35 20 95

NPV (INR sh) 21 18 10 50

Source: Edelweiss research

INR 63/share impact due to royalty and cess issue, in a bear scenario
To incentivise participation in the pre-NELP licensing rounds, govt. exempted private players from paying royalty on oil produced from the fields, with the entire burden of these payments falling on ONGC and OIL. Royalty: We believe that as per the Production Sharing Contract (PSC), ONGC (with 30% Royalty cost-recoverable = SOTP comes down by INR 50/share stake) is liable to pay full 20% royalty on oil produced from the RJ-ON-90/1 (Rajasthan) block. However, ONGC believes that royalty payments should be cost recoverable - i.e. include royalty payments as part of the project cost, which can later be recovered before profits splitting - and is currently discussing its case with the govt. In case govt. makes royalty payments cost-recoverable, our fair value SOTP comes down by INR 50/share. Cess: The PSC terms do not explicitly require CAIR to pay any cess on the Rajasthan block. However, on order of the Petroleum Ministry, CAIR, under protest, is paying cess of INR Cess of INR 2,575/tonne for the field life = SOTP comes down by INR 13/share 2,575/tonne for oil produced from the block; the matter is currently under arbitration. In a scenario where CAIR is required to pay cess of INR 2,575/tonne for the life of the field, our fair value SOTP comes down by INR 13/share. In our base case SOTP, we assume ONGC continues to pay full royalty and cess payment comes down to INR 927/tonne starting FY14 (assumed same as payment currently made for Ravva).

Edelweiss Securities Limited 4

Cairn India
Potential 10% discount to SOTP with Vedanta coming on board
Historically, we believe CAIR has traded at ~5-10% premium to SOTP due to its highquality asset base and leverage to crude prices. With likelihood of Vedanta coming onCAIR could trade at 10% discount to NAV near term board, the key question is should CAIR trade at a discount to SOTP? Since 2005, Vedanta has, on an average, traded at a 20-25% discount to BHP Billiton and Rio Tinto. However, over the past three years, the discount to BHP Billiton has dipped to 9% (refer Chart 4). We believe shares of CAIR could trade at a discount of ~10% to SOTP in the near term. CAIR could potentially re-rate, if there is further clarity on: (a) capital redeployment plans by Vedanta; and (b) ONGC continues to pay full royalty for the Rajasthan block. Chart 4: Vedanta has traded at a 9% discount to BHP over the past three years

Vedanta Disc/Prem (EV/T12M EBITDA)

150% 100% 50% 0% -50% -100%

May-05

May-06

May-07

May-08

May-09

May-10

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-05

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Vedanta vs BHP

Vedanta vs RIO
Source: Edelweiss research

Gearing to oil price wrecked over past nine months

CAIR has typically seen a strong correlation with crude prices, but over the past nine months its shares have moved sideways even as Brent prices increased 50%. We believe this disconnect will persist for the same reasons as discussed above. Chart 5: CAIRs high correlation with oil price wrecked, following Vedantas acquisition plans 250 250

Prices (rebased Jan 2008)

200 150 100 50 0

CAIR has historical traded at a premium to Brent..

Price (rebased Aug 16, 10')

200 150 100 50 0

.. but, the correlation is wrecked over last 9 months

Sep-10

Dec-10

Sep-10
Mar-11

Aug-10

Nov-10

Apr-08

Apr-09

Apr-10

Jan-08

Jan-09

Oct-08

Oct-09

Jan-10

Jul-08

Jul-09

Cairn India

Brent

Jul-10

Cairn India

Source: Edelweiss research

Edelweiss Securities Limited

Feb-11

Brent

Apr-11
5

Oct-10

Jan-11

Jan-11

Oil, Gas and Services

Spelling out the upside case at CAIR (INR 469/share bull case SOTP)
In our bull case, we highlight a path to INR 469/share for CAIR, with gross production from Bull case of INR 469/share, primarily driven by Rajasthan blocks ramping up to 240kb/d peak production the Rajasthan block peaking at managements stated vision of 240 kb/d (versus 210 kb/d in the base case). To reach 240 kb/d peak production, we have assumed incremental cumulative capex of USD 130 mn versus the base case. Key issues: (a) ONGC allowing further production ramp-ups in Rajasthan, while having to pay full royalty; and (b) post acquisition capital allocation plans of Vedanta. Table 3: Drilling plan summary in FY12/13
Block RJ-ON-90/1 SL-2007-01-001 PKGM-1 KG-ONN-2003/1 Location Barmer Hill (Rajasthan) Sri Lanka (Mannar Basin) Ravva KG Basin On/Off Shore Onshore Offshore Offshore Onshore Operator Cairn Cairn Cairn Cairn Working Interest 70% 100% 23% 49% Drilling plan Pilot plans drafted 6-month drilling program to commence by July 2011; 3 wells planned Horizontal and infill drilling commenced Nagayalanka-1Z discovered; E&A by end 2011
Source: Company Reports, Edelweiss research

1.

Barmer Hill (1.9 bn boe gross STOIIP, RJ-ON-90/1) CAIR has characterised its acreage in Barmer Hill as highly prospective, with estimated gross STOIIP (stock tank initial oil in place) of 1.9 bn boe. With recovery rates in analogous fields averaging between 7% and 20%, the company estimates gross recoverable resource of 140mmboe (~20% of current 2P reserves in Rajasthan). On its part, CAIR has submitted a declaration of commerciality for the prospect. It is currently drafting a pilot well test plan and intends to exploit the resources in the field in a staged manner.

2.

Ravva fields (horizontal and infill drilling to extend plateau) Following two consecutive years of production decline in Ravva fields (current production ~30 kb/d from a 10-year plateau of ~50kb/d), the company has started to employ a combination of infill and horizontal drilling to enhance and extend the plateau of the field. In our base case, we assume CAIR successfully arresting the production decline and maintaining a plateau rate of 31kb/d for the next six years by incurring incremental capex of USD 200 mn.

3.

Further upside from Enhanced oil recovery To maximise oil production from the existing Rajasthan discoveries, CAIR has started to implement proven Enhanced Oil Recovery (EOR) methods, with the pilot stage involving drilling of 10 wells in the Mangala field. The stated potential for the EOR plan is a) increase 2P reserves by 300mmboe and b) extend the plateau production (current plateau assumed at four years). In the Q3FY11 conference call, management highlighted that eight wells had already been drilled and were in the water injection phase. Management added that subject to necessary govt. approvals, the company would implement EOR across the entire Rajasthan block starting 2013.

4.

Wild cards: (a) Sri Lanka remains an unexplored frontier play with a three-well drilling plan set to commence in July 2011; (b) KG-DWN-98/2 material discovery made in UD1 well; ONGC is yet to submit FDP; (c) KG-ONN 2003/1 high quality Nagayalanka-1Z discovery; appraisal drilling to commence in FY12.

Edelweiss Securities Limited 6

Cairn India
Sensitivity analysis
We flex our fair value SOTP to four key factors: (a) crude price; (b) Rajasthan gross oil production levels; (c) WACC; and d) USD/INR. Key takeaway: For every USD 1/bbl increase in crude price, CAIRs SOTP increases by INR 2.6/share. Chart 6: SOTP impact 4.0

SOTP impact (INR/sh)

3.2

2.4

1.6

+3.2 +2.6

0.8

+1.3

0.0 1% rupee deprn +$1/bbl crude -10bps WACC

Source: Edelweiss research

Table 4: CAIR SOTP sensitivity analysis

Rajasthan Gross Production 150 kb/d Brent LT price USD 70/bbl USD 80/bbl USD 90/bbl USD 100/bbl USD 110/bbl 261 281 299 318 336 180kb/d 290 313 335 357 379 210 kb/d 318 345 370 396 421 WACC 9% Brent LT price USD 70/bbl USD 80/bbl USD 90/bbl USD 100/bbl USD 110/bbl 341 371 400 428 457 10% 329 357 384 411 438 11% 318 345 370 396 421 WACC 9% 42.0 USD/INR 44.0 46.0 48.0 50.0 377 388 400 411 422 10% 363 373 384 395 406 11% 350 360 370 380 391 12% 338 348 357 367 377 13% 328 337 346 355 364 12% 308 333 357 382 406 13% 299 323 346 369 392 240kb/d 337 366 393 420 448 270kb/d 351 380 409 437 465

Source: Edelweiss research

Edelweiss Securities Limited

Oil, Gas and Services

Financial Statements
Income statement Year to March Net revenue Increase/decrease in stocks Lifting costs Production expenses Employee costs Statutory levies Other Expenses Total operating expenses EBITDA Recouped cost EBIT Other income Foreign exchange gain/(loss) Interest expenses Profit before tax Provision for tax Current taxes Deferred taxes Fringe tax benefit Core profit Profit After Tax Profit after minority interest Basic shares outstanding (mn) Basic EPS (INR) Diluted equity shares (mn) Diluted EPS (INR) CEPS (INR) Dividend per share (INR) Common size metrics - as % of net Year to March Direct Cost Other expenses Depreciation Interest expenditure EBITDA margins Net profit margins Growth ratios (%) Year to March Revenues EBITDA PBT Net profit EPS FY09 41.5 36.4 684.5 (3,373.6) (3,178.4) FY10 13.3 7.8 2.9 30.8 30.8 FY11E 554.1 789.6 638.0 489.9 489.9 FY12E 41.4 43.1 56.8 53.6 53.6 FY13E 15.9 22.9 19.4 19.4 19.4 FY09 14.9 12.1 30.6 0.4 63.5 56.1 FY10 26.2 6.8 22.0 0.9 60.4 64.8 FY11E 15.7 1.1 10.4 2.7 82.2 58.4 FY12E 15.3 0.8 6.1 1.1 83.2 63.4 FY13E 10.4 0.7 10.6 0.8 88.2 65.4 FY09 14,327 222 1,075 2,130 1,145 1,054 1,732 5,007 9,098 4,382 4,716 5,945 (717) 64 9,879 1,844 1,111 623 110 8,035 8,035 8,035 1,897 4.2 1,914 4.2 6.9 FY10 16,230 (366) 2,782 4,248 1,441 1,466 1,102 6,791 9,805 3,570 6,235 4,077 148 10,163 (348) 2,216 (1,087) (1,477) 10,511 10,511 10,511 1,897 5.5 1,914 5.5 6.9 FY11E 106,166 6,489 16,688 1,118 10,199 1,135 18,941 87,225 11,071 76,154 1,735 2,880 75,008 13,000 15,000 1,500 (3,500) 62,008 62,008 62,008 1,908 32.5 1,914 32.4 39.1 1.6 FY12E 150,107 8,369 22,927 1,157 14,558 1,169 25,252 124,855 9,205 115,650 3,580 1,650 117,580 22,344 22,344 95,235 95,235 95,235 1,914 49.8 1,914 49.8 54.6 5.0 (INR mn) FY13E 173,953 10,462 18,051 1,197 7,589 1,204 20,452 153,502 18,459 135,043 6,680 1,350 140,373 26,676 26,676 113,697 113,697 113,697 1,914 59.4 1,914 59.4 69.0 8.9

Edelweiss Securities Limited 8

Cairn India

Balance sheet As on 31st March Equity capital Reserves & surplus Shareholders funds Secured loans Unsecured loans Borrowings Deferred tax liability Sources of funds Gross block Depreciation Net block Capital work in progress Total fixed assets Investments Inventories Sundry debtors Cash and equivalents Loans and advances Other current assets Total current assets Sundry creditors and others Others current liabilities Total current liabilities & provisions Net current assets Uses of funds Book value per share (INR) Free cash flow Year to March Net profit Depreciation Deferred tax Others Gross cash flow Less: Changes in WC Operating cash flow Less: Capex Free cash flow Cash flow metrics Year to March Operating cash flow Investing cash flow Financing cash flow Net cash flow Capex Dividends paid Share issuance/(buyback) FY09 14,355 (30,118) 66,564 50,802 (37,052) 26,189 FY10 876 (44,173) (9,631) (52,928) (31,122) 74 FY11E 71,394 (16,342) (9,027) 46,025 (30,201) (3,100) 961 FY12E 103,928 (30,603) (14,971) 58,355 (34,183) (9,524) 1,202 FY09 8,035 4,382 623 (6,251) 6,789 7,566 14,355 (37,052) (22,697) FY10 10,511 3,570 (1,087) (3,762) 9,232 (8,357) 876 (31,122) (30,247) FY11E 62,008 11,071 1,500 (188) 74,391 (2,997) 71,394 (30,201) 41,194 FY12E 95,235 9,205 (1,930) 102,510 1,418 103,928 (34,183) 69,746 FY09 18,967 308,668 328,023 222 43,342 43,564 5,540 377,128 260,277 3,437 256,839 62,027 318,867 1,713 1,683 1,516 65,271 3,505 704 72,680 11,794 4,337 16,132 56,548 377,128 162.9 FY10 18,970 319,250 338,683 34,007 34,007 4,453 377,144 261,791 2,335 259,457 91,635 351,092 17,124 2,909 3,067 9,294 8,318 145 23,734 9,869 4,937 14,806 8,928 377,144 168.5 FY11E 19,084 379,468 398,552 30,000 30,000 6,119 434,671 289,292 11,906 277,387 94,335 371,721 5,000 12,740 14,863 55,320 47,775 1,380 132,078 47,775 26,353 74,127 57,950 434,671 198.8 FY12E 19,142 466,325 485,466 25,000 25,000 6,119 516,586 319,077 21,110 297,967 98,732 396,699 5,000 18,013 21,015 113,674 67,548 1,951 222,201 67,548 39,767 107,315 114,886 516,586 243.6

(INR mn) FY13E 19,142 562,967 582,109 20,000 20,000 6,119 608,228 328,737 39,069 289,668 106,915 396,583 5,000 20,874 24,353 210,312 78,279 2,261 336,080 78,279 51,156 129,435 206,645 608,228 294.1 (INR mn) FY13E 113,697 18,459 (5,830) 126,326 4,879 131,205 (17,843) 113,362

FY13E 131,205 (11,163) (23,405) 96,638 (17,843) (17,055) -

Edelweiss Securities Limited

Oil, Gas and Services

Profitability & efficiency ratios Year to March EBITDA margin (%) ROAE (%) ROACE (%) ROA Receivable turnover (x) Inventory turnover (x) Payables turnover (x) Inventory day Debtors days Payable days Cash conversion cycle (days) Current ratio Quick ratio Cash ratio Debt/EBITDA Debt/Equity Adjusted debt/equity Interest coverage Long term debt / Capital employed (%) Total debt / Capital employed (%) Operating ratios Year to March Total asset turnover Fixed asset turnover Equity turnover Du pont analysis Year to March NP margin (%) Total assets turnover Leverage multiplier ROAE (%) Valuation parameters Year to March Diluted EPS (INR) Y-o-Y growth (%) CEPS (INR) Diluted PE (x) Price/BV (x) EV/Sales (x) EV/EBITDA (x) EV/EBITDA (x)+1 yr forward Dividend yield (%) Basic EPS Basic P/E (x) FY09 4.2 (3,178.4) 6.9 80.0 2.1 43.9 67.4 64.2 4.2 79.3 FY10 5.5 30.8 6.9 61.1 2.0 40.7 65.7 7.6 5.5 60.6 FY11E 32.4 489.9 39.1 10.4 1.7 5.9 7.0 5.0 0.5 32.5 10.3 FY12E 49.8 53.6 54.6 6.7 1.4 3.8 4.4 3.7 1.5 49.8 6.7 FY13E 59.4 19.4 69.0 5.7 1.1 2.7 2.9 4.3 2.7 59.4 5.7 FY09 56.1 1.1 2.6 FY10 64.8 1.1 3.2 FY11E 58.4 0.3 1.1 16.8 FY12E 63.4 0.3 1.1 21.5 FY13E 65.4 0.3 1.1 21.3 FY09 0.1 FY10 0.1 FY11E 0.3 0.4 0.3 FY12E 0.3 0.5 0.3 FY13E 0.3 0.6 0.3 FY09 63.5 2.6 1.4 2.4 10.0 8.5 1.2 43 36 300 (221) 4.5 4.4 4.0 4.8 0.1 0.1 73.6 11.6 11.6 FY10 60.4 3.2 1.7 2.8 7.1 5.6 1.6 65 52 222 (105) 1.6 1.4 0.6 3.5 0.1 0.1 42.1 9.0 9.0 FY11E 82.2 16.8 19.3 15.3 11.8 8.3 2.2 44 31 164 (90) 1.8 1.6 0.7 0.3 0.1 0.1 26.4 6.9 6.9 FY12E 83.2 21.5 24.6 20.0 8.4 8.3 2.2 44 44 164 (77) 2.1 1.9 1.1 0.2 0.1 0.1 70.1 4.8 4.8 FY13E 88.2 21.3 24.2 20.2 7.7 8.3 2.2 44 48 164 (73) 2.6 2.4 1.6 0.1 100.0 3.3 3.3

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RATING & INTERPRETATION

Cairn India

Company Aban Offshore Cairn India Essar Oil Hindustan Petroleum Corporation Indraprastha Gas Petronet LNG Shiv Vani Oil & Gas Exploration Service

Absolute reco HOLD HOLD BUY REDUCE BUY BUY BUY

Relative reco SU SP SO SU SO SO SO

Relative risk H M H L L L M

Company Bharat Petroleum Corporation Chennai Petroleum Corporation GAIL (INDIA) Indian Oil Corporation ONGC Reliance Industries

Absolute reco REDUCE HOLD BUY HOLD BUY BUY

Relative Relative reco SU SP SO SP SP SO Risk M H L M L M

ABSOLUTE RATING
Ratings Buy Hold Reduce Expected absolute returns over 12 months More than 15% Between 15% and - 5% Less than -5%

RELATIVE RETURNS RATING

Ratings Sector Outperformer (SO) Sector Performer (SP) Criteria Stock return > 1.25 x Sector return Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Low (L) Medium (M) High (H) Criteria Bottom 1/3rd percentile in the sector Middle 1/3rd percentile in the sector Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING
Ratings Overweight (OW) Equalweight (EW) Criteria Sector return > 1.25 x Nifty return Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return
Edelweiss Securities Limited 11

Oil, Gas and Services

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098. Board: (91-22) 4009 4400, Email: research@edelcap.com
Vikas Khemani Nischal Maheshwari Head Head Institutional Equities Research vikas.khemani@edelcap.com nischal.maheshwari@edelcap.com +91 22 2286 4206 +91 22 6623 3411

Coverage group(s) of stocks by primary analyst(s): Oil,Gas and Services

Aban Offshore, Bharat Petroleum Corporation, Cairn India, Essar Oil, GAIL (INDIA), Hindustan Petroleum Corporation, Indraprastha Gas, Indian Oil Corporation, Chennai Petroleum Corporation, ONGC, Petronet LNG, Reliance Industries, Shiv Vani Oil & Gas Exploration Service

Cairn India

EW Indices

400 360 (INR) 320 280 240 200 Hold

1,400

Hold Hold Hold Hold

1,150 900 650 400 11-May-10 Cairn India Ltd. 11-Nov-10 EW O & G Index 11-May-11 Nifty

May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11

Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Rating Distribution* * 3 stocks under review > 50bn Market Cap (INR) 111 118 Hold 51 Reduce 17 Total 189 < 10bn 17

Recent Research Date Company Oil & Gas Title Price (INR) Recos

05-May-11

Diesel price hike factored in; Call it quits; Sector Update GRMs robust despite high crude prices; Monthly Update On a strong wicket; Result Update 186 Buy

Between 10bn and 50 bn 61

03-May-11

Oil & Gas Monthly Petronet LNG

26-Apr-11

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