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Seeking contracts in a tough operating environment. Aban Offshore reported weaker-than-expected results in 3QFY15 reflecting lower utilization of fleet due to (1) survey/maintenance of Aban Abraham and (2) refurbishment of Aban IV. A lower crude price environment and subdued utilization of offshore rigs do not augur well for day-rates in the near term, which will pose serious risks to Aban’s profitability and free cash flows, as two-thirds of its fleet will be seeking contracts/renewals in CY2015.
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1% qoq decline in EBITDA; 13% qoq decline in net income Aban’s net sales declined 1.5% qoq to `10 bn (+1% yoy), 6% below our estimate of `10.6 bn, led by lower-than-expected utilization of fleet. Aban Abraham was unavailable for 39 days due to survey and maintenance while Aban IV remained unutilized during the entire quarter due to refurbishment-related activities, which were required before its next deployment with ONGC. Reported EBITDA declined 1% qoq to `5.9 bn (+4.5% yoy). However, net income declined 13% qoq to `1.3 bn led by higher effective tax rate at 22.8% in 3QFY15 versus 16.4% in 2QFY15. Lower crude prices and subdued utilization of jack-ups do not augur well for day-rates Our expectation of lower crude prices in the near term along with subdued outlook on the utilization of offshore rigs does not augur well for day-rates in the near term. Exhibit 2 shows that utilization rates of jack-ups have declined to about 73% currently as compared to 84% a year ago led by addition of new fleet in the global markets. Industry journals suggest that the jack-up utilization rates are expected to remain low in CY2015 led by scheduled delivery of under-construction fleet and a gradual weakening of demand environment for offshore services, particularly in light of sharp decline in crude prices. Significant risks exist, as Aban is required to seek contracts for two-thirds of its fleet in CY2015 Potential correction in day-rates and/or underutilization of fleet pose meaningful risks to Aban’s profitability, free cash flows and debt-repayment ability in the medium term. We note that nine jack-ups are due for renewal of contracts in CY2015, besides two jack-ups and one FPU under marketing currently. High leverage on Aban’s balance sheet with a net debt/EBITDA of 5.1X and low EBITDA to interest coverage ratio of 2.4X for FY2016E provides limited headroom for any disappointment on contracts/renewals, which cannot be ruled out completely in a lower crude price environment. Exhibit 3 shows the status of the fleet, while Exhibit 4 shows a prolonged debt-repayment schedule for the company. Earnings revision We have revised our earnings estimates for Aban to `98 in FY2015E, `112 in FY2016E and `113 in FY2017E from `100, `107 and `111 previously to reflect (1) our weaker exchange rate assumptions, (2) lower day-rates for a few rigs and (3) other minor changes. We have assumed subscription of the remaining 1.5 mn share warrants by promoters in FY2016.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29012015tg.pdf
Seeking contracts in a tough operating environment. Aban Offshore reported weaker-than-expected results in 3QFY15 reflecting lower utilization of fleet due to (1) survey/maintenance of Aban Abraham and (2) refurbishment of Aban IV. A lower crude price environment and subdued utilization of offshore rigs do not augur well for day-rates in the near term, which will pose serious risks to Aban’s profitability and free cash flows, as two-thirds of its fleet will be seeking contracts/renewals in CY2015.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
1% qoq decline in EBITDA; 13% qoq decline in net income Aban’s net sales declined 1.5% qoq to `10 bn (+1% yoy), 6% below our estimate of `10.6 bn, led by lower-than-expected utilization of fleet. Aban Abraham was unavailable for 39 days due to survey and maintenance while Aban IV remained unutilized during the entire quarter due to refurbishment-related activities, which were required before its next deployment with ONGC. Reported EBITDA declined 1% qoq to `5.9 bn (+4.5% yoy). However, net income declined 13% qoq to `1.3 bn led by higher effective tax rate at 22.8% in 3QFY15 versus 16.4% in 2QFY15. Lower crude prices and subdued utilization of jack-ups do not augur well for day-rates Our expectation of lower crude prices in the near term along with subdued outlook on the utilization of offshore rigs does not augur well for day-rates in the near term. Exhibit 2 shows that utilization rates of jack-ups have declined to about 73% currently as compared to 84% a year ago led by addition of new fleet in the global markets. Industry journals suggest that the jack-up utilization rates are expected to remain low in CY2015 led by scheduled delivery of under-construction fleet and a gradual weakening of demand environment for offshore services, particularly in light of sharp decline in crude prices. Significant risks exist, as Aban is required to seek contracts for two-thirds of its fleet in CY2015 Potential correction in day-rates and/or underutilization of fleet pose meaningful risks to Aban’s profitability, free cash flows and debt-repayment ability in the medium term. We note that nine jack-ups are due for renewal of contracts in CY2015, besides two jack-ups and one FPU under marketing currently. High leverage on Aban’s balance sheet with a net debt/EBITDA of 5.1X and low EBITDA to interest coverage ratio of 2.4X for FY2016E provides limited headroom for any disappointment on contracts/renewals, which cannot be ruled out completely in a lower crude price environment. Exhibit 3 shows the status of the fleet, while Exhibit 4 shows a prolonged debt-repayment schedule for the company. Earnings revision We have revised our earnings estimates for Aban to `98 in FY2015E, `112 in FY2016E and `113 in FY2017E from `100, `107 and `111 previously to reflect (1) our weaker exchange rate assumptions, (2) lower day-rates for a few rigs and (3) other minor changes. We have assumed subscription of the remaining 1.5 mn share warrants by promoters in FY2016.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29012015tg.pdf
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