Aban Offshore EBIDTA in line-Higher tax drag net profit:: Emkay

n 3Q13 EBIDTA at Rs4.9 bn (-2.6% yoy) came in line. Higher
tax rate @48% (vs estimate of 26%) drags APAT at Rs390 mn
(-46.6% yoy) below est (Rs689 mn)
n Refinance of INR debt of ~USD350 on track-see potential
saving of USD25 mn. USD140mn already done @ LIBOR+6%
bps implying ~8% savings. Balance by 1QFY14
n DD-2,4,5 contract/day rate renewal (though on track) delayed
by a quarter resulting in incremental revenues loss for
4QFY13 leading to cut in FY13E/14E EBIDTA estimate by -
3.5%/-1.7% while EPS est see higher cuts at -27%/-10%
n Contract renewals & debt refinance remains key triggers to
improve cash flow visibility & accelerate de-leveraging.
Possible QIP of up to USD100 mn leading to high dilution
could be a stock dampener. ACCUMULATE
Margins contract 420bps- However higher revenues lead to in line EBITDA
Aban’s Q3FY13 EBITDA at Rs4.87bn, -2.6% yoy came in line with estimates. However
despite higher than estimated revenues of Rs9.1bn, +5% yoy (vs est of Rs8.6bn)
margins at 53.6% (vs est of 57.7%), declined 420bps yoy. This was due to 1. Higher preoperating
expenses at the start of renewed contracts for Aban7, DD7 2. Rig DD-I
operated for just 15days during the quarter resulting in higher fixed costs with almost no
contribution to revenues. As a result total expenses increased 15.4% yoy resulting in
420bps contraction in margins.
Higher tax rate drags APAT below estimates
Despite in line EBITDA, APAT at Rs390mn, -46.6% yoy and -45.2% qoq , came in lower
than estimates of Rs690mn led by substantially higher tax rates at 41.5% resulted in
below estimated profit for the quarter. Tax expenses also included one time provisions
made by the company for withholding tax for earlier years. Reported net profit came in at
Rs291mn, -60.3% yoy and -41% qoq. Interest charges at Rs2.99bn increased +16.6%
yoy, due to higher coupon rate for Aban’s refinanced bond issues (1st Bond issued
refinance at coupon of 12% and 2nd bond redemption at 14.25% vs earlier 9.3%).
Refinance of INR debt of ~USD350 on track - USD 140mn INR debt already
refinanced, implying ~800bps savings
Aban’s plan to reduce interest costs by refinancing its high cost rupee term loan of Rs18
bn (~USD350mn with interest rate of 13-14%) with ECB (having interest rate of ~7-8%)
remains on track. Out of this sum, USD 140mn has already been refinanced at interest
rate of LIBOR +6%, Implying a saving of ~800 bps, higher than our expectations (we
were building in 650 bps saving). Company has got credit approval for another USD 95
mn (out of the remaining USD 210 mn) from domestic banks, and the documentation
work is going on currently while it is waiting for approvals for the remaining USD115mn
amount. The company is targeting potential saving of 700 bps annually leading to total
savings of USD25mn.

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