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Revenue lower than estimate; EBITDA margin dips slightly Q-o-Q
Aban Offshore’s (Aban) Q3FY11 consolidated revenue, at INR 7.8 bn (-6.0% Q-o-Q
and -7.5% Y-o-Y), was lower than the estimated INR 8.2 bn, due to delayed start-up
of contract for Aban-II rig. Operating cost, at INR 2.0 bn, was below estimate due
to lower other expenses (with de-hiring of Aban-IV rig). Consequently, EBITDA, at
INR 5.2 bn, was down 0.5% Y-o-Y and 7.1% Q-o-Q. Q3FY11 EBITDA margins
dipped 80bps, to 66.4%.
PAT dented by loss from associates and diminution in investment
Interest expense, at INR 2.3 bn, was down 3.2% Q-o-Q and 10.4% Y-o-Y due to
lower average debt at USD 2.8 bn during Q3FY11 end. Depreciation was down due
to lower deprecation of old jack-ups held in the standalone entity. Aban wrote off
INR 134.6 mn towards further provision for diminution in investment in Petrojack
ASA (INR 139.4 mn in Q2FY11). The company plans to write-off the remaining
~INR 140 mn in Q4FY11. Share of losses from associates was higher at INR 433
mn against the estimated INR 302 mn, due to higher depreciation of the Aban
Abraham asset. Consequently, Aban reported PAT of INR 620 mn. However,
excluding the loss incurred from associates, the company reported earnings of INR
1.05 bn, in line with our INR 1.05 bn estimate.
Outlook and valuations: Waiting in the wings; maintain ‘HOLD’
Q3FY11 was operationally good, except for the distortion in PAT due to loss from
associates and write-off of investments of Petrojack. Currently, 17 out of Aban’s 19
assets are contracted (except Aban-IV and Deep Venture). Earnings for the
company have been impacted due to losses from Aban Abraham (share of
associates). Management expects positive outcome from the Deep Venture over
next two quarters. We are presently not factoring in any earnings from Deep
Venture in FY12; an early resolution of the dispute leaves room for further upsides.
Further, we have accounted for higher losses from Aban Abraham and,
consequently, lowered our FY11 PAT estimates by 16.4%. The same has also
impacted our March 2012 fair value estimate; we now peg it at INR 893/share
(earlier INR 945, based on 6.5x 1-year forward EV/EBITDA).
We are structurally positive on offshore rig companies and believe that high crude
prices will raise earnings of offshore rig companies. However, Aban’s stock
performance will be muted until there is positive outcome from Aban Abraham
arbitration. Hence, we maintain ‘HOLD/Sector Underperformer’ on the stock. At
INR 568/share, Aban is trading at 4.0x FY12E EPS.
Company Description
Aban is the flagship company of the Aban Group, promoted by Mr. M. A. Abraham. The
company, founded in 1986, is an offshore drilling contractor. Through a series of
aggressive acquisitions over the years, its fleet expanded to 20 rigs by FY09 end/early
FY10. Notable clients include ONGC, Hardy Exploration & Production (India), Oriental Oil
(Dubai), Shell Brunei, Shell Malaysia, Gujarat State Petroleum Corporation (GSPC). Aban
is headquartered in Chennai (India) with subsidiaries and overseas offices in Singapore,
Norway, and Cyprus. Aban’s average asset age is 17.3 years.
Investment Theme
Industry environment has improved as crude has recovered from earlier lows and
contracts are being signed at gradual pace (though 30-40% lower dayrates).
Consequently, jack-up day rates have corrected and capacity utilization has declined in
the industry. However, the recent fixtures of Aban at significantly higher day rates have
come as a significant positive, providing revenue visibility and earnings comfort given its
high debt and leverage.
Key Risks
Low commodity prices and global economic weakness could impact capex budgets of E&P
companies and oilfield services demand.
Higher debt could expand interest costs. Further, any realized/unrealized losses on
derivative contracts could impact the company.
Low disclosure levels in Singapore subsidiary, given that more than 65-70% of its
revenues in FY09E are likely from this arm.
Dependence on ONGC, geo-political tensions in area of operations, vessel break down
could impact the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Revenue lower than estimate; EBITDA margin dips slightly Q-o-Q
Aban Offshore’s (Aban) Q3FY11 consolidated revenue, at INR 7.8 bn (-6.0% Q-o-Q
and -7.5% Y-o-Y), was lower than the estimated INR 8.2 bn, due to delayed start-up
of contract for Aban-II rig. Operating cost, at INR 2.0 bn, was below estimate due
to lower other expenses (with de-hiring of Aban-IV rig). Consequently, EBITDA, at
INR 5.2 bn, was down 0.5% Y-o-Y and 7.1% Q-o-Q. Q3FY11 EBITDA margins
dipped 80bps, to 66.4%.
PAT dented by loss from associates and diminution in investment
Interest expense, at INR 2.3 bn, was down 3.2% Q-o-Q and 10.4% Y-o-Y due to
lower average debt at USD 2.8 bn during Q3FY11 end. Depreciation was down due
to lower deprecation of old jack-ups held in the standalone entity. Aban wrote off
INR 134.6 mn towards further provision for diminution in investment in Petrojack
ASA (INR 139.4 mn in Q2FY11). The company plans to write-off the remaining
~INR 140 mn in Q4FY11. Share of losses from associates was higher at INR 433
mn against the estimated INR 302 mn, due to higher depreciation of the Aban
Abraham asset. Consequently, Aban reported PAT of INR 620 mn. However,
excluding the loss incurred from associates, the company reported earnings of INR
1.05 bn, in line with our INR 1.05 bn estimate.
Outlook and valuations: Waiting in the wings; maintain ‘HOLD’
Q3FY11 was operationally good, except for the distortion in PAT due to loss from
associates and write-off of investments of Petrojack. Currently, 17 out of Aban’s 19
assets are contracted (except Aban-IV and Deep Venture). Earnings for the
company have been impacted due to losses from Aban Abraham (share of
associates). Management expects positive outcome from the Deep Venture over
next two quarters. We are presently not factoring in any earnings from Deep
Venture in FY12; an early resolution of the dispute leaves room for further upsides.
Further, we have accounted for higher losses from Aban Abraham and,
consequently, lowered our FY11 PAT estimates by 16.4%. The same has also
impacted our March 2012 fair value estimate; we now peg it at INR 893/share
(earlier INR 945, based on 6.5x 1-year forward EV/EBITDA).
We are structurally positive on offshore rig companies and believe that high crude
prices will raise earnings of offshore rig companies. However, Aban’s stock
performance will be muted until there is positive outcome from Aban Abraham
arbitration. Hence, we maintain ‘HOLD/Sector Underperformer’ on the stock. At
INR 568/share, Aban is trading at 4.0x FY12E EPS.
Company Description
Aban is the flagship company of the Aban Group, promoted by Mr. M. A. Abraham. The
company, founded in 1986, is an offshore drilling contractor. Through a series of
aggressive acquisitions over the years, its fleet expanded to 20 rigs by FY09 end/early
FY10. Notable clients include ONGC, Hardy Exploration & Production (India), Oriental Oil
(Dubai), Shell Brunei, Shell Malaysia, Gujarat State Petroleum Corporation (GSPC). Aban
is headquartered in Chennai (India) with subsidiaries and overseas offices in Singapore,
Norway, and Cyprus. Aban’s average asset age is 17.3 years.
Investment Theme
Industry environment has improved as crude has recovered from earlier lows and
contracts are being signed at gradual pace (though 30-40% lower dayrates).
Consequently, jack-up day rates have corrected and capacity utilization has declined in
the industry. However, the recent fixtures of Aban at significantly higher day rates have
come as a significant positive, providing revenue visibility and earnings comfort given its
high debt and leverage.
Key Risks
Low commodity prices and global economic weakness could impact capex budgets of E&P
companies and oilfield services demand.
Higher debt could expand interest costs. Further, any realized/unrealized losses on
derivative contracts could impact the company.
Low disclosure levels in Singapore subsidiary, given that more than 65-70% of its
revenues in FY09E are likely from this arm.
Dependence on ONGC, geo-political tensions in area of operations, vessel break down
could impact the company.
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