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Aban Offshore (Aban)
Energy
Weak results. Aban reported 2QFY12 EBITDA (consolidated) at `4.6 bn (+1.2% qoq),
6.6% lower than our estimate of `4.9 bn led by likely lower utilization levels; revenues
were at `7.6 bn (+4.3% qoq), 6.8% below our estimate of `8.2 bn. Net income at
`793 mn (-10.5% qoq) was further impacted by higher-than-expected interest cost and
depreciation. We maintain our BUY rating with a revised DCF-based target price of
`635 (`670 previously) given inexpensive valuations.
Net income declines 10.5% qoq despite increase in revenues
Aban reported 2QFY12 EBITDA (consolidated) at `4.6 bn versus `4.5 bn in 1QFY12 and `5.6 bn in
2QFY11; our estimate was `4.9 bn. Reported net income declined by 10.5% qoq to `793 mn
despite 4.3% qoq improvement in revenues to `7.6 bn. The sharp qoq decline in net income
reflects (1) lower operating margins at 60.2% versus 62% in 1QFY12 due to higher staff cost and
insurance charges, (2) higher interest cost at `2.3 bn (+6.1% qoq) and (3) higher depreciation at
`1.3 bn (+8.5% qoq).
Likely recovery in jackup rates given higher utilization levels and expected improvement in demand
As per ODS-Petrodata, contracted utilization of jackups has improved in the recent months to
79.3% in October 2011 as compared to average utilization of 70-75% since mid-2009. We
highlight that jackup utilization for marketed fleet has increased to 92.1% in the recent month.
We expect Aban Offshore to benefit from likely improvement in demand for jackups over the next
12 months in Southeast Asia, particularly in India, Indonesia, Malaysia and Thailand.
Retain BUY on attractive valuations
We maintain our BUY rating on Aban Offshore given a potential upside of 46% to our revised
DCF-based target price of `635 (`670 previously). We note that the stock is currently trading at
7.2X FY2012E EBITDA and 6.5X FY2013E EBITDA; the EV/EBITDA of the company continues to be
high despite the sharp correction in the stock price given the large debt in its capital structure.
However, we expect the multiple to turn favorable as the company repays the debt using its cash
flow generated over the next few years. We highlight that Aban’s net debt/EBITDA ratio stands at
6.3X and 5.6X in FY2012E and FY2013E and EBITDA to interest coverage ratio is at 2.1X and 2.4X
in FY2012E and FY2013E.
Earnings revision to reflect weaker Rupee
We have revised our FY2012-14E EPS to `97 (-2.6%), `116 (+12.8%) and `128 (+10%) to reflect
(1) 2QFY12 results, (2) revised exchange rate assumptions and (3) other minor changes. We have
revised our exchange rate assumption for FY2012E, FY2013E and FY2014E to `47.3/US$,
`49.75/US$ and `48.5/US$ versus `46.3/US$, `45.6/US$ and `45/US$ previously.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aban Offshore (Aban)
Energy
Weak results. Aban reported 2QFY12 EBITDA (consolidated) at `4.6 bn (+1.2% qoq),
6.6% lower than our estimate of `4.9 bn led by likely lower utilization levels; revenues
were at `7.6 bn (+4.3% qoq), 6.8% below our estimate of `8.2 bn. Net income at
`793 mn (-10.5% qoq) was further impacted by higher-than-expected interest cost and
depreciation. We maintain our BUY rating with a revised DCF-based target price of
`635 (`670 previously) given inexpensive valuations.
Net income declines 10.5% qoq despite increase in revenues
Aban reported 2QFY12 EBITDA (consolidated) at `4.6 bn versus `4.5 bn in 1QFY12 and `5.6 bn in
2QFY11; our estimate was `4.9 bn. Reported net income declined by 10.5% qoq to `793 mn
despite 4.3% qoq improvement in revenues to `7.6 bn. The sharp qoq decline in net income
reflects (1) lower operating margins at 60.2% versus 62% in 1QFY12 due to higher staff cost and
insurance charges, (2) higher interest cost at `2.3 bn (+6.1% qoq) and (3) higher depreciation at
`1.3 bn (+8.5% qoq).
Likely recovery in jackup rates given higher utilization levels and expected improvement in demand
As per ODS-Petrodata, contracted utilization of jackups has improved in the recent months to
79.3% in October 2011 as compared to average utilization of 70-75% since mid-2009. We
highlight that jackup utilization for marketed fleet has increased to 92.1% in the recent month.
We expect Aban Offshore to benefit from likely improvement in demand for jackups over the next
12 months in Southeast Asia, particularly in India, Indonesia, Malaysia and Thailand.
Retain BUY on attractive valuations
We maintain our BUY rating on Aban Offshore given a potential upside of 46% to our revised
DCF-based target price of `635 (`670 previously). We note that the stock is currently trading at
7.2X FY2012E EBITDA and 6.5X FY2013E EBITDA; the EV/EBITDA of the company continues to be
high despite the sharp correction in the stock price given the large debt in its capital structure.
However, we expect the multiple to turn favorable as the company repays the debt using its cash
flow generated over the next few years. We highlight that Aban’s net debt/EBITDA ratio stands at
6.3X and 5.6X in FY2012E and FY2013E and EBITDA to interest coverage ratio is at 2.1X and 2.4X
in FY2012E and FY2013E.
Earnings revision to reflect weaker Rupee
We have revised our FY2012-14E EPS to `97 (-2.6%), `116 (+12.8%) and `128 (+10%) to reflect
(1) 2QFY12 results, (2) revised exchange rate assumptions and (3) other minor changes. We have
revised our exchange rate assumption for FY2012E, FY2013E and FY2014E to `47.3/US$,
`49.75/US$ and `48.5/US$ versus `46.3/US$, `45.6/US$ and `45/US$ previously.
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