Cairn board meets on special dividend

An increase in production helped the company offset foreign exchange loss of Rs 786 cr in the second quarter of 2011

Cairn India is set to announce its maiden dividend tomorrow after its board meeting. Analysts said the company has so far given a guided 20-per cent annual payout.

“Management had earlier indicated 20 per cent of profits may be paid out as regular dividend going forward. Twenty per cent of profits for 2011-12 works out to Rs 15 per share," said Jefferies India Private Limited. "Other than the guided 20-per cent annual payout, we expect a special dividend, which implies six per cent dividend yield over the next 12 months," said financial services group CLSA.

Though the market is looking forward to the announcement of a special dividend, analysts cautioned investors on potential disappointment in peak production from the Rajasthan block not auguring well. "We are sceptical about peak production guidance of 300,000 barrels of oil per day and consequent higher recovery of reserves from the Rajasthan block and factor in lower peak production accordingly," said Kotak Securities in its research report.

The report added that crude production beyond 240,000 barrels of oil per day would require changes to the production-sharing contract for further exploration, as the exploration phase expired in 2005. It would also require establishment of higher reserves and suitable augmentation of infrastructure.

Any delay in these steps may result in disappointment in production, lower recovery of reserves and thus, prevent meaningful value creation."

Jefferies India Private Limited, in its report, said, "The Government of India is yet to take a decision on whether to allow contractors to re-enter exploration phase in producing blocks including in Cairn's Rajasthan block, which is needed to increase production to 300,000 barrels of oil per day in medium term."

Higher production from its field helped Cairn India, the subsidiary of London stock exchange-listed Vedanta Resources, to post more than triple its net profit during the September quarter to Rs 2,322.18 crore.

Net profit during the July-September quarter last year stood at Rs 763.03 crore.

The increase in production helped the company offset foreign exchange loss of Rs 786 crore against a gain of Rs 531 crore during second quarter of 2011.

The company's scrip traded almost flat since its results announcement last week.

It closed at Rs 335.15 at the BSE on Tuesday.