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Delays/ write offs continue
Profits at INR620m affected by delays in chartering rigs
EBITDA margins continue to be strong at ~66%
Don't expect Deep venture and Aban Abraham chartered in FY11
We value Aban at INR664/sh, 1-yr fwd EV/EBITDA 7x
Profit lower-than-expectations
Aban reported consolidated net profit at
INR620mn (down 17% q-q and down 31%
y-y), lower than expectations, primarily on
account of delays in chartering of Aban II
and Aban VII and further write off of
Norwegian asset, Petrojack ASA for
INR135mn. EBITDA margins continue to
be strong at ~66% (adjusted for JV
losses). As observed in 2Q, the spike in
margins has been due to lower other
expenses of ~INR1.1bn compared to an
average run-rate of INR1.5bn in 1QFY10-
1QFY11.
Delayed start to Aban II and Aban VII, Deep Venture idle
Based on discussions with management, Aban II and Aban VII have
started operations only since December 2010, a delay compared to
market expectations. We expect the last round of earnings downgrades
to come for FY11 (to account for the final write-off for Petrojack of
INR130mn and Aban Abraham commencing by end of March 2011) as
from 1QFY12 there is sufficient clarity on the operations of the rigs which
are under long term contracts. However, concerns will remain on the
redeployment of rigs coming off contracts from ONGC during the
1HFY12. We expect to get some clarity on the deployment of Deep
Venture by end of FY11 which is caught in a continued arbitration row.
We project FY12-13 margins will dip to ~62%, as the current high-margin
contracts of Aban II, III, IV and V get redeployed at lower rates
It is getting interesting at Aban
We have been advocating that investors avoid adding positions in jack-up
heavy drillers like Aban for some time now, in a rising crude-price
environment; but rather they should focus on deep-water players. Since
January 13, 2011, (our last update), Aban shares went down 23%, while
Sensex went down 7% (an underperformance by ~16%) mainly owing
to disappointments from delays in chartering rigs like Aban Abraham.
Aban also has been hit with renewed concern over debt repayments, with
FCCB redemption pressure in April 2011 for ~INR2.6b. We value Aban at
INR664/sh, based on 1-yr fwd EV/EBITDA of 7x, which is lower than peer
average of ~7.5x (Exhibit 4). In the event there is a sell-off on the back of
3QFY11 earnings (we don’t think a sell-off is warranted); we would revisit
our thesis as Aban returns to more attractive valuation levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Delays/ write offs continue
Profits at INR620m affected by delays in chartering rigs
EBITDA margins continue to be strong at ~66%
Don't expect Deep venture and Aban Abraham chartered in FY11
We value Aban at INR664/sh, 1-yr fwd EV/EBITDA 7x
Profit lower-than-expectations
Aban reported consolidated net profit at
INR620mn (down 17% q-q and down 31%
y-y), lower than expectations, primarily on
account of delays in chartering of Aban II
and Aban VII and further write off of
Norwegian asset, Petrojack ASA for
INR135mn. EBITDA margins continue to
be strong at ~66% (adjusted for JV
losses). As observed in 2Q, the spike in
margins has been due to lower other
expenses of ~INR1.1bn compared to an
average run-rate of INR1.5bn in 1QFY10-
1QFY11.
Delayed start to Aban II and Aban VII, Deep Venture idle
Based on discussions with management, Aban II and Aban VII have
started operations only since December 2010, a delay compared to
market expectations. We expect the last round of earnings downgrades
to come for FY11 (to account for the final write-off for Petrojack of
INR130mn and Aban Abraham commencing by end of March 2011) as
from 1QFY12 there is sufficient clarity on the operations of the rigs which
are under long term contracts. However, concerns will remain on the
redeployment of rigs coming off contracts from ONGC during the
1HFY12. We expect to get some clarity on the deployment of Deep
Venture by end of FY11 which is caught in a continued arbitration row.
We project FY12-13 margins will dip to ~62%, as the current high-margin
contracts of Aban II, III, IV and V get redeployed at lower rates
It is getting interesting at Aban
We have been advocating that investors avoid adding positions in jack-up
heavy drillers like Aban for some time now, in a rising crude-price
environment; but rather they should focus on deep-water players. Since
January 13, 2011, (our last update), Aban shares went down 23%, while
Sensex went down 7% (an underperformance by ~16%) mainly owing
to disappointments from delays in chartering rigs like Aban Abraham.
Aban also has been hit with renewed concern over debt repayments, with
FCCB redemption pressure in April 2011 for ~INR2.6b. We value Aban at
INR664/sh, based on 1-yr fwd EV/EBITDA of 7x, which is lower than peer
average of ~7.5x (Exhibit 4). In the event there is a sell-off on the back of
3QFY11 earnings (we don’t think a sell-off is warranted); we would revisit
our thesis as Aban returns to more attractive valuation levels.
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