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Aban Offshore (Aban)
Energy
At last a quarter without one-offs. Aban reported higher-than-expected 1QFY12
EBITDA (consolidated) at `4.5 bn (-12% qoq) versus our estimate of `4.3 bn. The
revenues were in at `7.3 bn (-18.6% qoq); however, net income was boosted by
better-than-expected operating margins. Reported net income (excluding JV) declined
17.1% qoq to `886 mn due to lower utilization in 1QFY12. We maintain our BUY
rating with a revised DCF-based target price of `700 (`775 previously).
Results boosted by high operating margins
Aban reported 1QFY12 EBITDA (consolidated) at `4.5 bn (-12% qoq and -12.9% yoy), 4.6%
higher than our estimate of `4.3 bn. Reported net income at `886 mn (-17.1% qoq) was higher
versus our estimate of `573 mn due to (1) higher-than-expected operating margins and (2) lowerthan-
expected tax rate at 26%. EBITDA margin adjusted for exchange fluctuation loss was at
62.7%, lower than 66.1% in 4QFY11, but higher than our estimate of 59%. The management
attributed the qoq decline in margins to significant number of jackups being idle in the quarter.
Jackup utilization to improve despite increase in supply
As per ODS-Petrodata data, global jackup utilization rate is expected to increase to 75.5% in June
2012 from 68.2% currently despite addition of 20 new jackups in the same period. We note that
average quarterly utilization rate for jackups less than 10 years old is 92% over the past one year
(versus ~80% for those in age group of 11-20 years) despite significant addition in supply. We
expect Aban to benefit from the strong demand for jackups less than 10 years old given 9 out of
its 15 jackups are in that category.
Retain BUY on attractive valuations
We maintain our BUY rating on Aban Offshore given a potential upside of 59% to our revised
DCF-based target price of `700 (`775 previously). We note that the stock is currently trading at
6.8X 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
5.9X and 5.5X in FY2012E and FY2013E and EBITDA to interest coverage ratio is at 2.2X and 2.5X
in FY2012E and FY2013E.
Earnings revision
We have revised our FY2012-13E EPS to `95 (-8%) and `107 (+3.1%) to reflect (1) 1QFY12
results, (2) revised exchange rate assumptions, (3) lower EBITDA margins and (4) other minor
changes. We have revised our exchange rate assumption for FY2012E, FY2013E and FY2014E to
`44.75/US$, `45.63/US$ and `45/US$ versus `45.5/US$, `44/US$ and `44/US$ previously.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aban Offshore (Aban)
Energy
At last a quarter without one-offs. Aban reported higher-than-expected 1QFY12
EBITDA (consolidated) at `4.5 bn (-12% qoq) versus our estimate of `4.3 bn. The
revenues were in at `7.3 bn (-18.6% qoq); however, net income was boosted by
better-than-expected operating margins. Reported net income (excluding JV) declined
17.1% qoq to `886 mn due to lower utilization in 1QFY12. We maintain our BUY
rating with a revised DCF-based target price of `700 (`775 previously).
Results boosted by high operating margins
Aban reported 1QFY12 EBITDA (consolidated) at `4.5 bn (-12% qoq and -12.9% yoy), 4.6%
higher than our estimate of `4.3 bn. Reported net income at `886 mn (-17.1% qoq) was higher
versus our estimate of `573 mn due to (1) higher-than-expected operating margins and (2) lowerthan-
expected tax rate at 26%. EBITDA margin adjusted for exchange fluctuation loss was at
62.7%, lower than 66.1% in 4QFY11, but higher than our estimate of 59%. The management
attributed the qoq decline in margins to significant number of jackups being idle in the quarter.
Jackup utilization to improve despite increase in supply
As per ODS-Petrodata data, global jackup utilization rate is expected to increase to 75.5% in June
2012 from 68.2% currently despite addition of 20 new jackups in the same period. We note that
average quarterly utilization rate for jackups less than 10 years old is 92% over the past one year
(versus ~80% for those in age group of 11-20 years) despite significant addition in supply. We
expect Aban to benefit from the strong demand for jackups less than 10 years old given 9 out of
its 15 jackups are in that category.
Retain BUY on attractive valuations
We maintain our BUY rating on Aban Offshore given a potential upside of 59% to our revised
DCF-based target price of `700 (`775 previously). We note that the stock is currently trading at
6.8X 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
5.9X and 5.5X in FY2012E and FY2013E and EBITDA to interest coverage ratio is at 2.2X and 2.5X
in FY2012E and FY2013E.
Earnings revision
We have revised our FY2012-13E EPS to `95 (-8%) and `107 (+3.1%) to reflect (1) 1QFY12
results, (2) revised exchange rate assumptions, (3) lower EBITDA margins and (4) other minor
changes. We have revised our exchange rate assumption for FY2012E, FY2013E and FY2014E to
`44.75/US$, `45.63/US$ and `45/US$ versus `45.5/US$, `44/US$ and `44/US$ previously.
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