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UBS Investment Research
Aban Offshore
1 QFY11: Low rig utilisation
Event: Idle rigs weigh in on results
Aban reported 1QFY12 numbers below our and street estimates. The top line and
bottomline were both ~15% below our estimate. Aban III, Aban V and Aban VII
went off contract during the quarter and did not contribute fully to the earnings.
Impact: We expect better utilisation to improve future earnings
The drillship, Aban Abraham commenced operations beginning of June and Aban
IV in July; hence Q2 numbers should incorporate the impact of operations
throughout the quarter. From the rigs that were deployed, Aban maintained an
EBITDA margin of 62% for the quarter. This was lower than FY11 EBITDA
margin of 65% as some of the costs are incurred weather the rig is deployed or not.
For instance, company pays insurance, though lesser, even for docked rigs.
Action: Rig deployment is key catalyst
Visibility on deployment of rigs should be a key catalyst for the stock in our view.
Two of the deep drillers come up for contract renewals by year end and we expect
their redeployment to be a key trigger. The company has become more confident
on the deployment of the Aban series (low spec) rigs that were under marketing
during the quarter. We expect improvement in earnings and interest coverage from
contribution of Aban Abraham and Aban IV, and any newsflow on contract
rollovers/new contracts will contribute to stock performance.
Valuation: Maintain DCF based PT of Rs 850/share
We use a WACC of 13.04% for our DCF. In a high interest rate environment, the
debt overhang and jack-up rig oversupply could be a short-term overhang on Aban.
Aban Offshore
Aban Offshore is the flagship company of the Aban Group. It was founded in
1986 by M.A. Abraham. Aban Offshore is the largest drilling entity in the
private sector. The company launched its first contract drilling service for
ONGC in 1987 with two modern jack-up drilling rigs acquired from the US.
Currently Aban has 18 rigs and one floating production unit. Of the 18 rigs,
three are drill ships and the remainder jack-ups.
Statement of Risk
The offshore industry is a derived demand industry. We believe the fundamental
risk factor associated with offshore drillers such as Aban Offshore is rig rates
and the utilisation of rigs. Rig rates and the utilisation of rigs depend upon
capital expenditure from oil firms, which in turn is dependent on the oil price.
Low oil prices would force oil firms to reduce capex on exploration and
development, which in turn would pull down rig rates and utilisation. Secondly,
Aban has become highly leveraged post its acquisition of Sinvest in 2006 and
had a high net-debt to equity ratio of 6.5 in FY10. The business cycle having
turned, refinancing of debt due for repayment in FY12 will become critical for
the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Aban Offshore
1 QFY11: Low rig utilisation
Event: Idle rigs weigh in on results
Aban reported 1QFY12 numbers below our and street estimates. The top line and
bottomline were both ~15% below our estimate. Aban III, Aban V and Aban VII
went off contract during the quarter and did not contribute fully to the earnings.
Impact: We expect better utilisation to improve future earnings
The drillship, Aban Abraham commenced operations beginning of June and Aban
IV in July; hence Q2 numbers should incorporate the impact of operations
throughout the quarter. From the rigs that were deployed, Aban maintained an
EBITDA margin of 62% for the quarter. This was lower than FY11 EBITDA
margin of 65% as some of the costs are incurred weather the rig is deployed or not.
For instance, company pays insurance, though lesser, even for docked rigs.
Action: Rig deployment is key catalyst
Visibility on deployment of rigs should be a key catalyst for the stock in our view.
Two of the deep drillers come up for contract renewals by year end and we expect
their redeployment to be a key trigger. The company has become more confident
on the deployment of the Aban series (low spec) rigs that were under marketing
during the quarter. We expect improvement in earnings and interest coverage from
contribution of Aban Abraham and Aban IV, and any newsflow on contract
rollovers/new contracts will contribute to stock performance.
Valuation: Maintain DCF based PT of Rs 850/share
We use a WACC of 13.04% for our DCF. In a high interest rate environment, the
debt overhang and jack-up rig oversupply could be a short-term overhang on Aban.
Aban Offshore
Aban Offshore is the flagship company of the Aban Group. It was founded in
1986 by M.A. Abraham. Aban Offshore is the largest drilling entity in the
private sector. The company launched its first contract drilling service for
ONGC in 1987 with two modern jack-up drilling rigs acquired from the US.
Currently Aban has 18 rigs and one floating production unit. Of the 18 rigs,
three are drill ships and the remainder jack-ups.
Statement of Risk
The offshore industry is a derived demand industry. We believe the fundamental
risk factor associated with offshore drillers such as Aban Offshore is rig rates
and the utilisation of rigs. Rig rates and the utilisation of rigs depend upon
capital expenditure from oil firms, which in turn is dependent on the oil price.
Low oil prices would force oil firms to reduce capex on exploration and
development, which in turn would pull down rig rates and utilisation. Secondly,
Aban has become highly leveraged post its acquisition of Sinvest in 2006 and
had a high net-debt to equity ratio of 6.5 in FY10. The business cycle having
turned, refinancing of debt due for repayment in FY12 will become critical for
the company.
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