Good performance as of now… • Aban Offshore :: ICICI Securities, report

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Good performance as of now… • Aban Offshore reported its Q3FY15 results with revenues at | 1003.2 crore, up 0.9% YoY in line with our estimate of | 991.6 crore • EBITDA at | 584.6 crore came in marginally above our estimate of | 572.2 crore while the EBITDA margin at 58.3% was above our estimate of 57.7% • Lower than estimated tax rate (22.8% vs. our estimate of 30%) contributed to the increase in PAT by 63.6% YoY to | 128.8 crore in Q3FY15 Renewal of contracts may be cause for concern next year For Aban Offshore, commencement of orders secured from ONGC for the deployment of jack-up rigs Aban III and Aban IV in the current quarter and full utilisation of Aban Abraham will result in stable Q4FY15 numbers. However, Aban 5, Aban 7 and Tahara, which are currently under marketing, remain the main concern for the company. Also, renewal of contracts for Aban 2 and DD 5 (expiry in April 2015) along with two more rigs that will expire later in the year will be very important for the company. Due to the sharp decline in crude oil prices, we assume marginally lower renewal rates and asset utilisation for rigs that are to be renewed. Recent fund raising, refinancing of debt to lower interest costs Aban Offshore has raised equity through placement of shares via qualified institutional buyer (QIB) and conversion of preferential warrants to equity from promoters. The company raised ~| 850 crore from issuances of new equity shares. Also, refinancing of its high cost rupee debt with foreign debt at lower costs would also help to reduce the company’s finance costs. Better cash flows from the company over the last two years have reduced Aban’s interest cost to EBITDA ratio from 59.4% in FY13 to 47.9% in Q3FY15. We expect the company’s interest costs to reduce from | 1,140.6 crore in FY14 to | 898.6 crore in FY17E. Asset utilisation - key to operational performance As per the management, the demand scenario for rigs will be clear only when assets are due for renewal and actual renegotiation takes place. The management expects the rigs to be re-contracted in future but day rate pricing would be subject to market competition. New contracts for Aban 5 and Aban 7, which are currently under marketing and re-contracting the rigs that are up for renewal later in the year, would be key to Aban’s operational performance in the medium term. Renewal of Aban 5 and Aban 7 could lead to upgradation of earnings estimates, which we have still not factored in our assumption. We have assumed marginally lower renewal rates and asset utilisation for the rigs that are to be renewed. Overall, stable asset utilisation will help the company to maintain its current profitability. However, lower prices and inability to renew assets would remain key risks to earnings. We have a HOLD recommendation on the stock with a target price of | 545, 5.75x FY17E EV/EBITDA.

LINK
 http://content.icicidirect.com/mailimages/IDirect_AbanOffshore_Q3FY15.pdf