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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In calm, shallower waters
Tenders floated for ONGC orders, catalysts come back
Captive domestic market to enable cashflows from older rigs
NOK bond pre-payment, a key instance of debt restructuring
Upgrade to BUY at TP of INR689, based on 7x FY12E EBITDA
Upgrade to BUY post correction
Aban shares have underperformed YTD
along with other Indian oil-field service
providers (down ~30% compared to flat
BSE Sensex). While our concerns about
earnings downgrade on account of lowerthan-
expected day rates and the lack of
catalysts have come true, we believe the
current valuation levels present an
opportunity to play for new contract wins
(ABAN II, III, IV, V) and also the deleveraging
story, which has come to light
on account of the recent bond prepayment
and a par settlement for Deep
Venture (USD69mn). We upgrade Aban
to BUY (from Reduce) with a TP of INR689 (from INR664), implying 15%
upside potential. We assume a three-month delay in chartering of all the
ONGC (ONGC IN) rigs. ONGC has already floated tenders for Aban’s
rigs which come off contract over the next couple of months. We expect
Aban to be the likely winner, which is a function of its ability to mobilise
rigs faster as they are parked closer to the well site and because of the
lower mobilisation charges that make Aban’s bid competitive.
FY12/13E earnings conservative; negatives factored in
We expect EBITDA margin to contract from 65% in FY11 to 61% in
FY12-13, as high-margin contracts with ONGC are due to end by April-
May 2011 and are expected to be renewed at much lower day-rates.
However, we believe this is well known to the market and a negative
surprise to earnings is unlikely. We have cut our FY12-13 estimates,
adjusting for the loss of revenue from Deep Venture.
USD95m NOK bond pre-payment a sign of restructuring
Aban has exercised its call option on DD4 bond, and is due to pay the
outstanding USD95m by April 2011 (bond matures Apr 2012). We see
this as the first sign of a restructuring effort by Aban, and will result in net
interest savings of ~USD3m (FY12E EPS impact of ~2%). While we do
not refute the fact that Aban will need more rounds of refinancing from its
lenders, the terms are unlikely to be hugely detrimental (we estimate
effective interest cost at ~8% after restructuring, earlier 7%).
At CP, catalysts and deleveraging make Aban attractive
Our TP is based on 7x FY12E EBITDA, ~20% discount to global offshore
drillers (Exhibit 8) due to its relatively high leverage. After recommending
investors to avoid the shares after the unfortunate Aban Pearl incident,
we believe the current levels provide an attractive entry point. We believe
our TP is conservative and expect positive surprise as global drillers get
re-rated and potential new contract wins. We expect the volatility in Aban
shares to reduce and the shares to be a steady gainer. Key risks: Delays
from ONGC awarding contracts and exposure to Iran.
The Risk Experts
• Our starting point for this page is a recognition of the
macro factors that can have a significant impact on stockprice
performance, sometimes independently of bottom-up
factors.
• With our Risk Expert page, we identify the key macro risks
that can impact stock performance.
• This analysis enhances the fundamental work laid out in
the rest of this report, giving investors yet another resource
to use in their decision-making process.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In calm, shallower waters
Tenders floated for ONGC orders, catalysts come back
Captive domestic market to enable cashflows from older rigs
NOK bond pre-payment, a key instance of debt restructuring
Upgrade to BUY at TP of INR689, based on 7x FY12E EBITDA
Upgrade to BUY post correction
Aban shares have underperformed YTD
along with other Indian oil-field service
providers (down ~30% compared to flat
BSE Sensex). While our concerns about
earnings downgrade on account of lowerthan-
expected day rates and the lack of
catalysts have come true, we believe the
current valuation levels present an
opportunity to play for new contract wins
(ABAN II, III, IV, V) and also the deleveraging
story, which has come to light
on account of the recent bond prepayment
and a par settlement for Deep
Venture (USD69mn). We upgrade Aban
to BUY (from Reduce) with a TP of INR689 (from INR664), implying 15%
upside potential. We assume a three-month delay in chartering of all the
ONGC (ONGC IN) rigs. ONGC has already floated tenders for Aban’s
rigs which come off contract over the next couple of months. We expect
Aban to be the likely winner, which is a function of its ability to mobilise
rigs faster as they are parked closer to the well site and because of the
lower mobilisation charges that make Aban’s bid competitive.
FY12/13E earnings conservative; negatives factored in
We expect EBITDA margin to contract from 65% in FY11 to 61% in
FY12-13, as high-margin contracts with ONGC are due to end by April-
May 2011 and are expected to be renewed at much lower day-rates.
However, we believe this is well known to the market and a negative
surprise to earnings is unlikely. We have cut our FY12-13 estimates,
adjusting for the loss of revenue from Deep Venture.
USD95m NOK bond pre-payment a sign of restructuring
Aban has exercised its call option on DD4 bond, and is due to pay the
outstanding USD95m by April 2011 (bond matures Apr 2012). We see
this as the first sign of a restructuring effort by Aban, and will result in net
interest savings of ~USD3m (FY12E EPS impact of ~2%). While we do
not refute the fact that Aban will need more rounds of refinancing from its
lenders, the terms are unlikely to be hugely detrimental (we estimate
effective interest cost at ~8% after restructuring, earlier 7%).
At CP, catalysts and deleveraging make Aban attractive
Our TP is based on 7x FY12E EBITDA, ~20% discount to global offshore
drillers (Exhibit 8) due to its relatively high leverage. After recommending
investors to avoid the shares after the unfortunate Aban Pearl incident,
we believe the current levels provide an attractive entry point. We believe
our TP is conservative and expect positive surprise as global drillers get
re-rated and potential new contract wins. We expect the volatility in Aban
shares to reduce and the shares to be a steady gainer. Key risks: Delays
from ONGC awarding contracts and exposure to Iran.
The Risk Experts
• Our starting point for this page is a recognition of the
macro factors that can have a significant impact on stockprice
performance, sometimes independently of bottom-up
factors.
• With our Risk Expert page, we identify the key macro risks
that can impact stock performance.
• This analysis enhances the fundamental work laid out in
the rest of this report, giving investors yet another resource
to use in their decision-making process.
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