Edelweiss's Annual Report Analysis for Aban Offshore

Forex movements on consolidation imbibed in cash flow

n  Aban Offshore’s (Aban) net loan repaid as per cash flow stood at INR 24.3 bn in FY10. However, the reported loan book dipped by a mere INR 24.8 bn. Considering that INR 88.4 bn (~62.4%) of the loan book as at FY10 end (FY09: INR 100 bn ~ 60.1% of loan book) is foreign currency denominated and the INR appreciated 11.4% against USD during the year, it can be implied that forex gains on revaluation of loans have been included in repayment of loans in the cash flow.

n  FY10 cash flow statement states a net sale of investment of INR 8.1 bn on which the company has recognised a profit of INR 0.2 mn. Despite the sale, Aban reported increase in gross investment book by INR 0.4 bn (refer page 3 for details).

Derivative losses continued despite appreciating rupee

n  Surprisingly, the company has incurred derivative loss of INR 555.5 mn in FY10 (FY09: loss of INR 396.2 mn) despite appreciation of the INR against a depreciation in FY09. Also, the quantum of losses in standalone and consolidated financials is same despite varying derivative positions (refer table for derivative analysis on page 3).

INR appreciation impacts translation reserve on consolidation

n  During FY10, balance in foreign currency translation reserve (FCTR) dipped by INR 5.2 bn on 11.4% appreciation of the INR. However, during FY09 the balance in the FCTR had increased by INR 4.2 bn on 27.5% depreciation of INR (refer page 3 for details).

Operating metrics improved, but overall margins dipped

n  Aban’s consolidated sales increased 10.1% from INR 30.5 bn in FY09 to INR 33.6 bn in FY10.                            

n  EBIDTA margin improved from 56.8% in FY09 to 59.0% in FY10. However, PBT margins dipped from 22.3% in FY09 to 13.2% in FY10 primarily owing to INR 1.2 bn provision towards diminution in value of long-term investment towards equity investment by a foreign subsidiary and increase in finance charges.

n  Interest cost continued to be an overhang on the company and jumped 14.2% (from INR 8.6 bn in FY09 to INR 9.8 bn in FY10) primarily on account of low interest capitalisation.

n  CWIP dipped from INR 47.0 bn in FY09 to INR 0.1 bn in FY10, primarily due to commencement of new rigs.

n  The company’s loan book* dipped from INR 169.7 bn in FY09 to INR 144.9 bn in FY10. Consequently, its D/E* improved 12.0x in FY09 to 7.8x of FY10.

Other financial and accounting highlights

n  FCCB of JPY 5.4 bn are outstanding as at FY10 end (effective conversion price of INR 3,397.4), and will mature in April 2011. Currently, the company is neither providing for redemption premium nor showing it as contingent liability. Had the company provided for redemption premium from P&L, PBT for the year would have been lower by INR 138.4 mn (3.1% of PBT). Since FY10 end, the JPY has appreciated ~10.7% against INR which may lead to further increase in liability.