October 25, 2016 / 16:00 IST
Cairn reported strong Q2FY17 PAT at Rs 7.8 bn on higher than expected crude realization at USD 42/bl (USD 38/bl expected). Cairn’s realized crude price was at 9% discount to Brent (18% in Q1) as high heavy distillate (FO/LSWR) cracks supported demand price of heavier crude grades (such as Cairn’s crude). Management expects the discounts to remain at these levels in H2FY17.
We hike FY17E EPS by 48% to factor in (a) lower pricing discount of 12% in FY17 vs. 15% earlier, (b) lower tax rate of 8% in FY17 vs. 20% earlier (as guided by management).However, CMP already factors in future upsides such as long term crude at USD60/bl and Rajasthan peak volume at 200 kbpd. Downgrade to HOLD (TP of Rs 235) on stock price appreciation.
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