Cairn India profit drops 65% in Q1

Company to invest Rs 1,200 cr in next 3 years for developing gas finds in Rajasthan

Private oil and gas explorer Cairn India, a Vedanta group company, has reported a 65 per cent fall in its consolidated net profit for the April-June 2014 quarter at Rs 1,093 crore, compared with Rs 3,127 crore in the year-ago period. The company attributed the decline in profits to a change in depreciation calculation from the straight line method (SLM) to the unit of production (UOP). This resulted in Cairn making a one-time charge of Rs 1,627.39 crore to account for depreciation in previous years. Revenue from operations stood at Rs 4,483 crore, up 10 per cent from Rs 4,063 crore last year.

The net profit was below Street consensus estimates of Rs 2,538 crore, but revenues were mostly in line with market expectations. The stock gained less than a per cent in trading on Wednesday against 0.5 per cent in the Sensex. The results were announced after market hours on Wednesday. Profits would have been even lower if not for a sharp jump in other income to Rs 418 crore from Rs 125 crore in the corresponding quarter last year. Core operating profit (excluding other income) was up 4.9 per cent year-on-year - from Rs 2,909 crore in the June quarter last year to Rs 3,052 crore in the quarter under review. Higher operating expenses, coupled with slower revenue growth, resulted in a 352 basis-point decline in operating margin to 68 per cent from 71.5 per cent a year ago. Hundred basis points add up to one per cent.

The company is projecting a faster revenue and profit in the forthcoming quarter on the back of a step-up in gas production. "With multi-Tcf (trillion cubic feet) potential, we expect gas to be a significant contributor in our product mix. Before the end of FY15, we anticipate doubling of gas production from Rajasthan," said Sudhir Mathur, Interim CEO, Cairn India.

Cairn's two main projects of enhanced oil recovery and debottlenecking of Mangala Processing Terminal are according to schedule. "We are confident of not only achieving the stated exploration target of three billion barrels of hydrocarbons in-place, ahead of schedule, but also of adding another three billion barrel to our un-risked prospect inventory," Mathur added.

The company plans to invest $200 million (Rs 1,200 crore) over the next three years in developing the natural gas finds in its Rajasthan block. It said the gas business would be "large and substantial" and a major growth driver. "This gas is very similar to that in North America. We are sizing it up now and are bringing in technology from North America for this," said Mike Yeager, chairman of Cairn India's operations review board. Cairn India held its eighth annual general meeting here on Wednesday. Cairn India had started gas production from the block last month, with a cumulative sale of 2.7 billion standard cubic feet (scf) in 2013-14. It estimates a higher potential in the block and is building facilities that can handle up to 100 million scf a day of output, the company said in its annual report.

Overall, Cairn India will invest $3 billion (Rs 18,000 crore) in capex in the next three years. "We are confident that this will lead to a reserve replacement ratio of 150 per cent and help us deliver a growth (annually) of seven to 10 per cent in production over the next three years from the Rajasthan block," said Navin Agarwal, chairman, Cairn India.