Cairn India Ltd. (CAIR), the energy explorer that Vedanta Resources Plc (VED) plans to acquire, posted a 10-fold increase in fourth-quarter profit, beating analyst estimates after crude oil production and prices rose.
Net income, including that of units, climbed to a record 24.6 billion rupees ($543 million) in the three months ended March 31 from 2.45 billion rupees a year earlier, the company based in Gurgaon near New Delhi said in a statement to the Bombay Stock Exchange today. The average profit estimate of 20 analysts surveyed by Bloomberg was 23 billion rupees.
Cairn India sells oil at rates linked to market prices and gained from crude’s 9 percent increase this year. The unit of U.K.-based Cairn Energy Plc (CNE) expects the three fields in Rajasthan state, India’s largest onshore block, to produce 240,000 barrels a day compared with 125,000 barrels a day currently from one producing field.
“Production and price drove earnings to a record,” said Deepak Darisi, a Mumbai-based analyst with LKP Shares & Securities Ltd., which advises investors to buy the stock. Darisi has a share price target of 392 rupees.
Cairn India has gained 1.6 percent this year compared with a 13 percent drop in the benchmark Sensitive Index. The stock was unchanged at 338.10 rupees at the close in Mumbai, before the earnings were announced.
Production started from the Mangala field in Rajasthan in August 2009 and the oil is sold to customers including Indian Oil Corp. and Reliance Industries Ltd. (RIL) The explorer is awaiting approval from a panel, which includes representatives from the regulator and the government, to increase production to 150,000 barrels a day.
Crude oil in New York climbed 20 percent to an average of $94.6 a barrel in the three months ended March 31 from a year earlier, according to data compiled by Bloomberg. Prices averaged $98.89 a barrel this year and reached a high of $113.93 on April 29.
The parent company plans to sell a 40 percent stake in Cairn India to billionaire Anil Agarwal’s Vedanta Resources Plc and is awaiting approval from India’s government for the transaction. Vedanta will pay $9.4 billion to acquire a majority holding in Cairn India, including 8.1 percent from investors in an open offer and a 10.4 percent stake from Malaysia’s Petronas International Corp.
Vedanta’s acquisition proposal, made in August, was referred to a group of ministers to consider the view of state- owned Oil & Natural Gas Corp., Cairn India’s partner in Rajasthan. ONGC says royalty payments should be added to the project cost and recovered from sales.
“The overhang continues to be the delay in the government approval for the deal with Vedanta,” said Darisi. “Once that is done, Cairn will probably get permission to increase oil production further.”
ONGC, India’s biggest energy explorer, owns 30 percent in the Rajasthan block and pays royalty on the entire output under a contract signed by the government 15 years ago to attract foreign investors before the auction of oil blocks started in 1999.
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