Aban Offshore-Strong Margins Drive 2Q; Reiterate Buy:Citi

Visit http://indiaer.blogspot.com/ for complete details �� ��



Aban Offshore (ABAN.BO)
Strong Margins Drive 2Q; Reiterate Buy as Outlook Improves
 In-line 2Q, though operating margins surprise — 2Q PAT of Rs752m (+5% YoY)
was in line with estimates. Revenues were down QoQ due to lower contributions
from Aban Abraham and Aban VII (contracts ended in 1Q) and Aban Pearl (sank
in 1Q), partly offset by commencement of DD6 and DD8. EBITDA margins,
however, surprised on the upside, coming in at 67% (53-64% range in the last two
years) driven by improving rig utilisations. Bottom line was impacted by: (i) higher
than expected interest costs, (ii) Rs139m additional write-off on Petrojack
(Rs1.5bn so far), and (iii) –ve contribution of Rs302m in Deep Venture JV due to
nil revenues (rig lying idle), though running costs continue.


 Revising TP to Rs1,122 — As we roll forward our DCF to Mar-11 (from Sep-10)
and revise estimates. Despite stronger rupee assumptions, our FY12E ests rise
5% to reflect healthier EBITDA margins of 64% and actual day-rates for recent
contracts (Aban Abraham, Aban II, Aban VII). Our lower FY11E earnings reflect
the exceptional loss on Aban Pearl and the Petrojack write-off (Rs3.6bn in 1H).
 Improving outlook; expect better 2H — Citi’s regional team believes that jack-up
markets are improving due to limited supply next year and rising upstream capex
budgets (see https://www.citigroupgeo.com/pdf/SAP66806.pdf for details). This,
combined with crude price strength, should be a +ve for Aban. In addition, Aban
should report a stronger 2H driven by (i) commencement of Aban Abraham (Dec),
DD1 (Nov), Aban II/VII (Dec), (ii) full contribution from DD8, (iii) robust margins.
 Improving cash flow situation — With Aban receiving full insurance claim for Aban
Pearl and refinancing required of only certain bullet repayments commencing Jan-
12E, we believe that Aban’s deleveraging story remains intact. While some assets
end contracts in 1HCY11 (Aban II, III, IV, V, VII, FPU Tahara) and drillship Deep
Venture is still idle, we believe that the improving global outlook should enable
Aban to contract these out at reasonable rates, further boosting cash flows.