Edelweiss's research report on Cairn IndiaCairn India’s (CAIR) Q3FY16 earnings disappointed with an operating loss of INR2.3bn, while marginally breaking even at PAT level. EBITDAX (down 25% QoQ, 66% YoY) came 22% below estimate. Earnings were impacted by a sharp decline in realisation to USD35/bbl (down 20% QoQ, 50% YoY) and lower forex (FX) gains. Discount of Cairn’s heavy-crude widened sharply against Brent (19% discount versus 13% in Q2FY16). However, the company managed to report a modest operating cash flow (INR7bn) and total cash balance jumped INR5.3bn QoQ to INR185bn. Management remained confident about generating positive FCF even at stressed oil prices through further cost efficiencies and a possible reduction in cess. We believe merger risks are fading, while Cairn’s huge cash pile (~90% of current value) and handsome dividend yield (8%) will effectively cap potential downside. On lower oil price forecast we have cut our FY17E EPS 16% and reduced our TP to INR190 (INR206 earlier). Maintain ‘BUY’. Cash (INR100/share) represents 90% of CMP. A healthy 8% dividend yield caps further downside. We value Cairn’s core business at INR121/share and even after assuming 30% discount to cash our TP provides 70% upside to CMP. Maintain ‘BUY/SO’.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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