Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Timely deployments
ƒ Aban Abraham starts operations; New charters on schedule
ƒ 4QFY11 EBITDA margins continue to be strong at ~66%
ƒ Interest cost savings on bond refinancing; ~4% EPS impact
ƒ Attractive post-correction; new charters key trigger
FY12: stable margins and interest cost savings
Aban’s operating profits should see a
much needed boost with Aban Abraham
starting operations with Petrobras in June
2011. Aban VII and Aban V are idle and
we expect both to start operations in
2HFY12 (a three to five month delay). We
factor in conservative assumptions with
regard to rig deployments and charter
rates. We also assume a higher cost of
debt servicing (9% for the consolidated
business), at 150bps higher than
management guidance. Higher crude
prices usually fuel M&A activity in the oil
field service space, which results in higher valuations being assigned to
the companies. We expect Aban to be a beneficiary of the same along
with benefiting from financial leverage. However, due to the old fleet on
the domestic front and long-term contracts for the SG subsidiary, we do
not expect Aban to benefit operationally from higher crude prices.
4Q beat market expectations
Aban reported 4QFY11 consolidated revenue of INR9b, down 12% y-y,
with strong EBITDA margins at 66% beating both our and street
expectations. Standalone business saw margins decline in line with
expectations, due to the re-charter of the old rigs to ONGC (ONGC IN,
BUY), while the Singapore subsidiary showed continued strength on the
back of the DD series deployments. Aban took the last leg of write-offs in
Petro Jack ASA, at INR116m (to date Aban has written off ~30% of the
INR1.7b investment in Petro Jack). Earlier, in March, Aban exited
Venture Drilling AS (refers to Deep Venture), getting net proceeds of
USD34m, which partly helped in redeeming FCCBs. We would like to
highlight that Aban might account for ~USD20m of redemption premiums
and other charges on its FCCBs in 1QFY12, impacting earnings.
Recent correction makes shares attractive
We lower our TP on Aban from INR689 to INR647 to account for our
conservative estimates, which include re-charter delays and declines in
EBITDA margins. We value Aban on one-year forward EV/EBITDA of 7x,
which is lower than the peer average of ~8x (Exhibit 7). Aban reported a
strong 4QFY11, which we believe was indicative of the operational
leverage that the business can demonstrate when working at high
utilisations. We believe current levels provide attractive entry points as
business fundamentals improve and also as the historic volatility
associated with the shares declines. Risks: Delay in deployments and
lower day-rates.
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 �� ��
Timely deployments
ƒ Aban Abraham starts operations; New charters on schedule
ƒ 4QFY11 EBITDA margins continue to be strong at ~66%
ƒ Interest cost savings on bond refinancing; ~4% EPS impact
ƒ Attractive post-correction; new charters key trigger
FY12: stable margins and interest cost savings
Aban’s operating profits should see a
much needed boost with Aban Abraham
starting operations with Petrobras in June
2011. Aban VII and Aban V are idle and
we expect both to start operations in
2HFY12 (a three to five month delay). We
factor in conservative assumptions with
regard to rig deployments and charter
rates. We also assume a higher cost of
debt servicing (9% for the consolidated
business), at 150bps higher than
management guidance. Higher crude
prices usually fuel M&A activity in the oil
field service space, which results in higher valuations being assigned to
the companies. We expect Aban to be a beneficiary of the same along
with benefiting from financial leverage. However, due to the old fleet on
the domestic front and long-term contracts for the SG subsidiary, we do
not expect Aban to benefit operationally from higher crude prices.
4Q beat market expectations
Aban reported 4QFY11 consolidated revenue of INR9b, down 12% y-y,
with strong EBITDA margins at 66% beating both our and street
expectations. Standalone business saw margins decline in line with
expectations, due to the re-charter of the old rigs to ONGC (ONGC IN,
BUY), while the Singapore subsidiary showed continued strength on the
back of the DD series deployments. Aban took the last leg of write-offs in
Petro Jack ASA, at INR116m (to date Aban has written off ~30% of the
INR1.7b investment in Petro Jack). Earlier, in March, Aban exited
Venture Drilling AS (refers to Deep Venture), getting net proceeds of
USD34m, which partly helped in redeeming FCCBs. We would like to
highlight that Aban might account for ~USD20m of redemption premiums
and other charges on its FCCBs in 1QFY12, impacting earnings.
Recent correction makes shares attractive
We lower our TP on Aban from INR689 to INR647 to account for our
conservative estimates, which include re-charter delays and declines in
EBITDA margins. We value Aban on one-year forward EV/EBITDA of 7x,
which is lower than the peer average of ~8x (Exhibit 7). Aban reported a
strong 4QFY11, which we believe was indicative of the operational
leverage that the business can demonstrate when working at high
utilisations. We believe current levels provide attractive entry points as
business fundamentals improve and also as the historic volatility
associated with the shares declines. Risks: Delay in deployments and
lower day-rates.
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.
No comments:
Post a Comment