Aban Offshore - EBIDTA above Estimates- Net profit disappoints: Emkay

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Aban Offshore

EBIDTA above Estimates- Net profit disappoints

HOLD

CMP: Rs841                                       Target Price: Rs875

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n     Aban’s Q2FY11 APAT (ex profit from assoc) at Rs1.19 bn (+8% qoq) above est. Reported profit of Rs 752 mn below expectations, impacted by losses in JV and higher tax rate

n     Revenue at Rs8.28 bn, though down 1.7% qoq were above estimates. Lower other exp. boost EBIDTA margins to 67.2% driving better than expected EBITDA (Rs5.56 bn +6.9% qoq)

n     Continued  idle status of Deep venture and higher tax rate assumptions results in 12.1% downgrade in FY11 earnings 

n     Stock trades at 8.2X PER and 6.9X EV/EBIDTA.  Though we see near term earnings traction, downward revision in rates for standalone fleet to drag down FY12 EPS. Maintain HOLD

Topline at Rs8.28 bn –beats our estimates….

Aban’s consolidated revenues for the quarter stood at Rs8.28 bn (+17.8% yoy, down

1.7% sequentially), better than our estimates. Sequential revenue decline led by Idle

status of the rig - Aban Abraham which went off contract from April 2010 and sinking of

rig - Aban Pearl in the month of May 2010.

….so does EBIDTA at Rs5.56 bn

EBIDTA for the quarter stood at Rs5.56 bn (our expectation Rs4.78 bn) grew 22.8%yoy

and 6.9% qoq. EBITDA margins expanded by 274bps yoy to 67.2% (against our

estimate of 59.6%) driven by lower other expenditure. Expect margins to stabilize at

current levels for FY11E and decline in FY12E led by renewals of rig contracts at lower

day rates in the parent company.

Losses in associate company leads to lower than estimated APAT

Drive by higher than expected EBIDTA Aban’s APAT ex profit from associates at

Rs1.19 bn came in above our expectation (Rs1.0 bn). However with Aban’s 50% JV

Venture Drilling (For drillship Deep Venture) registering a loss of Rs302 mn (on account

of idle status of the rig) APAT including profit/(loss) from associates at Rs0.89 bn (+

24.7% yoy down 56.7% qoq) was below estimates (Rs1.08 bn). Tax rate for the quarter

rose to 38.8% (+80bps qoq) because of higher withholding tax rates. Reported net profit

stood at Rs751.6mn (+51% yoy) which includes Rs 0.13 bn on account of further write

off in relation to Aban’s Rs1.95 bn investment in Petrojack Drilling, a Norway Based

drilling company that filed for bankruptcy early in CY10.