Cairn India’s December quarter profit fell 14 per cent compared with the year ago period - despite its revenues rising 17 per cent. This dichotomy is not due to the company’s operational costs shooting up.
Rather, the lower profit is mainly due to three non-operational reasons. The company suffered foreign exchange losses as against gains a year ago. Also, it incurred one-off employee related expenses in contrast to merger related incomes last year. Finally, there was a sharp rise in taxes. Excluding these, Cairn’s profit would be higher by nearly 12 per cent.
The company’s operational performance in the December quarter and its optimism about growth prospects should provide comfort to investors. Production at the mainstay Rajasthan fields grew by 10 per cent year-on-year and by 6 per cent on a sequential quarter basis to 186,359 barrels of oil equivalent per day (boepd). This more than made up for the flat dollar realisations. Coming on the back of a 3 per cent year-on-year output growth in the September quarter, the recent good show lends credence to the company’s projection of being able to increase output to over 200,000 boepd by the end of FY-14. Cairn’s capital expenditure in the December quarter was up 80 per cent over the September quarter, and it has initiated enhanced oil recovery measures in the Rajasthan fields. These measures should yield dividends in the coming years.
Promising prospects in its KG onshore asset (Nagayalanka discovery) and its gas block in Sri Lanka could also boost Cairn’s output in the long-run.