Aban Offshore :: Revenues fall in 1Q, but should go back up in 2Q/3Q as most rigs generate income ::Credit Suisse,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Aban Offshore Ltd ----------------------------------------------------------- Maintain OUTPERFORM
Revenues fall in 1Q, but should go back up in 2Q/3Q as most rigs generate income


● Aban reported 1QFY12 EPS of Rs20.4, 9% behind our estimates
and 42% down QoQ. Revenues fell more than we expected, to Rs
7.3 bn for the quarter. EBITDA was down 12% QoQ.
● Revenues fell as the Aban III, IV and V were idle for the quarter.
While Aban IV commenced on its new contract in July, Aban III is
expected to start work in September. The company is hopeful of
Aban V commencing work soon as well.
● While the Abraham started work under its long term contract in
Latin America, it operated for only one month during the quarter;
not enough to compensate for revenue loss at the other rigs.
● If the contracts for Aban II and V come through as expected by the
company, Aban will have most of its rigs operational, with material
roll-overs due only in late 2012. The 3Q operations should then
reflect close to the best operational potential for the company.
● With its leverage and checkered history, Aban perhaps needs to
deliver a few strong quarters for the stock to respond. Reduction
in leverage over time should help equity value. OUTPERFORM.
1QFY12 numbers behind
Aban reported 1QFY12 EPS of Rs20.4, down 42% QoQ and 9%
behind our estimates. Total revenues of Rs7.3 bn were 5% less than
the our estimates of Rs7.7 bn and were down 19% QoQ. Total
expenditure fell less, meaning EBITDA was 6% below estimates.
Aban has booked exchange losses of Rs55 mn – on mark to market
of the Norwegian bonds outstanding with the company. During the
quarter, the company has also repaid FCCB worth Rs3.45 bn – the
consequent redemption premium and the currency adjustments are
not in the P&L, but have been adjusted to the balance sheet (debit
equity); which has been the standard practice among companies in
India. Total tax rates fell 773 bp QoQ due to a change in mix – Aban
lost income in India (high tax regime) while it continues to pay a
withholding of revenue on overseas rigs.


Lower rig utilisation
Aban lost revenues from the Aban III, IV and V in 1Q, and the Aban
VII operated for only half the quarter. The large Aban Abraham finally
commenced its long-term contract in Latin America, but earned
revenue for only a month in 1Q – which was not enough to make up
for the loss from the other rigs. We understand from the company that
the Aban IV has commenced work on its new contract in July, while
the Aban III is likely to commence work in September. The company is
confident about securing a contract for the Aban V soon, and is
hopeful of a quick deployment. The company also believes it has
reasonable visibility of work for the Aban VII and the Aban VIII (for up
to one year). That leaves the Aban II, contract for which finishes at
end of Q2, as perhaps the only rig open (though with a high probability
of being rolled over with the current operators, we believe).


With the start of the Abraham’s contract, Aban will have relatively
small rollovers due for the next few quarters. The 3Q revenues should
reflect the ‘full’ operating potential of the company. Given the high
leverage, and chequered history, the stock seems unlikely to respond
prior to earnings delivery. A few quarters of FCF should lead to stock
upside, we believe. Maintain OUTPERFORM.