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Aban Offshore (Aban)
Energy
Better-than-expected EBITDA; one-offs impact bottom line. Aban reported
3QFY11 EBITDA (consolidated) at `5.2 bn (-7.1% qoq, -0.5% yoy) versus our estimate
of `5 bn. Revenues at `7.8 bn were marginally lower than our estimated `7.9 bn.
However, reported net income at `620 mn (-17.5% qoq, -30.7% yoy) was lower versus
our expected `810 mn due to (1) unexpected loss of `433 mn from joint venture and
(2) provision of `135 mn for diminution in the value of investment in Petrojack. We
maintain our BUY rating with a revised DCF-based target price of `815.
3QFY11 EBITDA higher than our estimate; one-offs impact net income
Aban reported 3QFY11 EBITDA (consolidated) at `5.2 bn (-7.1% qoq, -0.5% yoy) versus our
estimate of `5 bn. EBITDA margin was healthy at 66.4% versus 67.2% in 2QFY11 and 61.7% in
3QFY10; the yoy improvement in margins was led by sharp reduction in other expenditure (-39%
yoy). However, reported net income at `620 mn (-17.5% qoq, -30.7% yoy) was lower versus our
estimate of `810 mn due to (1) unexpected loss of `433 mn from joint venture and (2) provision
of `135 mn for diminution in the value of investment in Petrojack.
Recent sharp correction offers an opportunity to invest
We believe the recent underperformance offers a good opportunity to invest in the stock; Aban
stock has corrected by 30% since January 1, 2011 versus BSE-Sensex’s decline of 14% in the same
period. We believe that the sharp correction in the stock price despite no change in operating
conditions reflects the street’s skepticism towards high-leverage companies. However, the current
valuations are discounting an extremely bleak scenario with respect to (1) dayrates and (2) debtrepayment
ability. On the contrary, we see the recent surge in crude prices as positive for global
E&P spending. This should auger well for Aban as some of its contracts are due for renewal in
early CY2011E and may command a higher dayrate versus our expectation.
Retain BUY on attractive valuations
We maintain our BUY rating on Aban Offshore given a potential upside of 43% to our revised
DCF-based target price of `815 (`915 previously). We note that the stock is currently trading at
6.5X FY2011E EBITDA and 6.4X FY2012E EBITDA. On P/E basis, the stock is trading at 5.4X
FY2011E EPS and 5.3X FY2012E EPS. Key downside risks stem from debt-repayment capability.
We highlight that Aban’s net debt/EBITDA ratio stands at 5.5X and 5.2X in FY2011E and FY2012E
and EBITDA to interest coverage ratio is at 2.4X and 2.5X in FY2011E and FY2012E.
Earnings revision
We have revised our FY2011-13E EPS to `105 (-0.6%), `108 (-13%) and `117 (-13.4%) to reflect
(1) lower dayrates (-ve impact), (2) lower operating costs (+ve impact) and (3) 3QFY11 results.
�� Higher EBITDA despite modestly lower revenues. Aban reported 3QFY11 revenues at
`7.8 bn (-7.5% yoy, -6% qoq), slightly lower than our estimated `7.9 bn. 3QFY11
EBITDA of `5.2 bn (-0.5% yoy, -7.5% qoq) was higher than our estimate of `5 bn.
EBITDA margin at 66.4% was above our estimated 63.1%.
�� Diminution in the valuations of investment for `135 mn. The company made
provision of `135 mn in 3QFY11 as diminution in the value of investment in Petrojack
which filed for bankruptcy in March 2010. We note that Aban’s investment in Petrojack
(20% stake) stood at `516 mn as on March 31, 2010. The company has provided for
`411 mn as provision in 9MFY11. The value of investment in Petrojack currently stands at
`105 mn which will likely be written off in the subsequent quarters.
�� Loss of `433 mn from joint venture. Aban reported a loss of `433 mn from its joint
venture in 3QFY11 versus `302 mn in 2QFY11. The management highlighted that it
reflects the cost associated with the early termination of the contract and idling of the rig.
The management also guided that the costs will be significantly lower in the subsequent
quarters even if the rig remains idle.
�� Lower other expenditure. Other expenses were lower at `1.1 bn (-39% yoy, -7.2%
qoq).
Earnings revision
We have revised our earnings estimates for Aban to `105, `108 and `117 for FY2011E-13E
versus `105, `124 and `135 previously. We note that the revision in earnings reflects (1)
revision in dayrates for jack-ups which are due for renewal of contract in the near term to
reflect the current prevailing dayrates for similar vessels (-ve impact), (2) moderately lower
operating costs given the operating margins achieved by the company in the recent quarters
(+ ve impact) and (3) other changes to reflect 3QFY11 results.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aban Offshore (Aban)
Energy
Better-than-expected EBITDA; one-offs impact bottom line. Aban reported
3QFY11 EBITDA (consolidated) at `5.2 bn (-7.1% qoq, -0.5% yoy) versus our estimate
of `5 bn. Revenues at `7.8 bn were marginally lower than our estimated `7.9 bn.
However, reported net income at `620 mn (-17.5% qoq, -30.7% yoy) was lower versus
our expected `810 mn due to (1) unexpected loss of `433 mn from joint venture and
(2) provision of `135 mn for diminution in the value of investment in Petrojack. We
maintain our BUY rating with a revised DCF-based target price of `815.
3QFY11 EBITDA higher than our estimate; one-offs impact net income
Aban reported 3QFY11 EBITDA (consolidated) at `5.2 bn (-7.1% qoq, -0.5% yoy) versus our
estimate of `5 bn. EBITDA margin was healthy at 66.4% versus 67.2% in 2QFY11 and 61.7% in
3QFY10; the yoy improvement in margins was led by sharp reduction in other expenditure (-39%
yoy). However, reported net income at `620 mn (-17.5% qoq, -30.7% yoy) was lower versus our
estimate of `810 mn due to (1) unexpected loss of `433 mn from joint venture and (2) provision
of `135 mn for diminution in the value of investment in Petrojack.
Recent sharp correction offers an opportunity to invest
We believe the recent underperformance offers a good opportunity to invest in the stock; Aban
stock has corrected by 30% since January 1, 2011 versus BSE-Sensex’s decline of 14% in the same
period. We believe that the sharp correction in the stock price despite no change in operating
conditions reflects the street’s skepticism towards high-leverage companies. However, the current
valuations are discounting an extremely bleak scenario with respect to (1) dayrates and (2) debtrepayment
ability. On the contrary, we see the recent surge in crude prices as positive for global
E&P spending. This should auger well for Aban as some of its contracts are due for renewal in
early CY2011E and may command a higher dayrate versus our expectation.
Retain BUY on attractive valuations
We maintain our BUY rating on Aban Offshore given a potential upside of 43% to our revised
DCF-based target price of `815 (`915 previously). We note that the stock is currently trading at
6.5X FY2011E EBITDA and 6.4X FY2012E EBITDA. On P/E basis, the stock is trading at 5.4X
FY2011E EPS and 5.3X FY2012E EPS. Key downside risks stem from debt-repayment capability.
We highlight that Aban’s net debt/EBITDA ratio stands at 5.5X and 5.2X in FY2011E and FY2012E
and EBITDA to interest coverage ratio is at 2.4X and 2.5X in FY2011E and FY2012E.
Earnings revision
We have revised our FY2011-13E EPS to `105 (-0.6%), `108 (-13%) and `117 (-13.4%) to reflect
(1) lower dayrates (-ve impact), (2) lower operating costs (+ve impact) and (3) 3QFY11 results.
�� Higher EBITDA despite modestly lower revenues. Aban reported 3QFY11 revenues at
`7.8 bn (-7.5% yoy, -6% qoq), slightly lower than our estimated `7.9 bn. 3QFY11
EBITDA of `5.2 bn (-0.5% yoy, -7.5% qoq) was higher than our estimate of `5 bn.
EBITDA margin at 66.4% was above our estimated 63.1%.
�� Diminution in the valuations of investment for `135 mn. The company made
provision of `135 mn in 3QFY11 as diminution in the value of investment in Petrojack
which filed for bankruptcy in March 2010. We note that Aban’s investment in Petrojack
(20% stake) stood at `516 mn as on March 31, 2010. The company has provided for
`411 mn as provision in 9MFY11. The value of investment in Petrojack currently stands at
`105 mn which will likely be written off in the subsequent quarters.
�� Loss of `433 mn from joint venture. Aban reported a loss of `433 mn from its joint
venture in 3QFY11 versus `302 mn in 2QFY11. The management highlighted that it
reflects the cost associated with the early termination of the contract and idling of the rig.
The management also guided that the costs will be significantly lower in the subsequent
quarters even if the rig remains idle.
�� Lower other expenditure. Other expenses were lower at `1.1 bn (-39% yoy, -7.2%
qoq).
Earnings revision
We have revised our earnings estimates for Aban to `105, `108 and `117 for FY2011E-13E
versus `105, `124 and `135 previously. We note that the revision in earnings reflects (1)
revision in dayrates for jack-ups which are due for renewal of contract in the near term to
reflect the current prevailing dayrates for similar vessels (-ve impact), (2) moderately lower
operating costs given the operating margins achieved by the company in the recent quarters
(+ ve impact) and (3) other changes to reflect 3QFY11 results.
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