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● We look at Aban’s FY11 annual report. Though Aban generated
$490 mn in operating cash flow, the reduction in debt ($250 mn)
was largely on account of the claims received for Aban Pearl and
on cancellation of the Venture contract.
● This disappointment was due to residual capex ($125 mn) and
higher working capital needs (around $100 mn). The company
suggests that a payment dispute (now settled) and business-related
advances led to higher working capital needs, and need not recur.
● Despite profits, Aban’s consolidated net worth fell in FY11 due to
currency-related translation losses (an appreciation of the NOK vs
the USD). The sharp depreciation of the INR/USD means Aban
can see further book erosion (c.27%) in FY12 at current levels.
● Global driller EBITDA multiples are now at 6.2x, down from 8x in
early FY12. At 6.2x, Aban’s stock would be worth Rs240, but it
would be worth Rs1065 if the multiple expanded to 8x. We have
updated our model for FY11 annual report. Our FY12/13E EPS
change by -3%/14%, and our target price changes to Rs863 (from
Rs811). We maintain OUTPERFORM.
Large ‘asset sale’ led to debt reduction
We look at Aban’s FY11 annual report and examine cash flow for the
year. Aban managed to reduce debt by Rs11.2 bn (c.US$250 mn or
8% of total) in FY11, while it generated Rs22.2 bn ($490 mn) in
operating cash flow (up 7% YoY). Despite the improvement, most of
the operational cash was absorbed back in the business: (1) Rs8.9 bn
in interest, (2) Rs2.3 bn in taxes, (3) Rs5.6 bn in capex (likely on the
refurbishment of rigs) and (4) Rs4.7 bn on higher working capital. The
reduction in debt is then largely attributable to the insurance money
received (Rs.10.7 bn for the Aban Pearl) and the proceeds from the
cancellation of the Deep Venture contract in April 2010. This is
disappointing, as Aban needs to use operational cash flow to reduce
its huge debt. With most assets now deployed, capex levels should fall.
The increase in working capital through FY11 is surprising, for what is
essentially a leasing business. While liabilities have fallen (provisions
are up YoY), loans and advances are up Rs967 mn (US$21 mn YoY).
Interestingly, ‘Sundry Debtors outstanding for more than 6 months’ is
up Rs2.3 bn (US$52 mn) YoY. The company suggests this might
relate to a dispute (for an Indian rig), that has since been resolved,
while the increase in loans/advances is related to business-related
deposits. These issues should not recur in FY12, while operational
cash flow should help reduce debt further.
Net worth falls despite profit due to adverse currency
Aban’s net worth fell Rs469 mn YoY, despite Rs943 mn in PAT less
dividends. While INR:USD was at similar levels around 31 March 2010
an 31 March 2011, the appreciation in the NOK (Aban has several
NOK bonds) compared to the dollar has likely hurt it. Aban does not
pass the resultant translation losses through the P&L, but directly
adjusts equity. The rupee has depreciated 8% against the dollar since
31 March 2011. We estimate this can further erode 27% of Aban’s
book. Given the dollar-denominated nature of its business, a weaker
rupee will help expand INR profits and compensate for the net worth fall.
Valuations tricky
We update our model for the FY11 annual report and introduce FY14
numbers. Given the large balance sheet leverage estimates are very
sensitive to assumptions; yet we see Aban trading at 3.2x FY13E EPS,
which is cheap relative to comps. However, Aban appears expensive
on EV/EBITDA valuations. Global driller multiples have contracted
from 8 times at start of FY12 to 6.2 times now. If Aban were to trade at
6.2 times as well, equity would be worth Rs240/share (using FY12
end net debt numbers). If the EBITDA multiple were to expand to 8x;
Aban’s equity would be worth Rs1065/share, or 171% upside.
While Aban has seen a material improvement in utilisations and
operations, upside to stock price may depend on: (1) an expansion of
global EBITDA multiples or (2) the market’s willingness to look at Aban’s
earnings multiples, which can happen if Aban consistently delivers on
estimates. Our FY12/13E EPS change -3%/14%, and our target price
changes to Rs863 (from Rs811). We maintain OUTPERFORM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We look at Aban’s FY11 annual report. Though Aban generated
$490 mn in operating cash flow, the reduction in debt ($250 mn)
was largely on account of the claims received for Aban Pearl and
on cancellation of the Venture contract.
● This disappointment was due to residual capex ($125 mn) and
higher working capital needs (around $100 mn). The company
suggests that a payment dispute (now settled) and business-related
advances led to higher working capital needs, and need not recur.
● Despite profits, Aban’s consolidated net worth fell in FY11 due to
currency-related translation losses (an appreciation of the NOK vs
the USD). The sharp depreciation of the INR/USD means Aban
can see further book erosion (c.27%) in FY12 at current levels.
● Global driller EBITDA multiples are now at 6.2x, down from 8x in
early FY12. At 6.2x, Aban’s stock would be worth Rs240, but it
would be worth Rs1065 if the multiple expanded to 8x. We have
updated our model for FY11 annual report. Our FY12/13E EPS
change by -3%/14%, and our target price changes to Rs863 (from
Rs811). We maintain OUTPERFORM.
Large ‘asset sale’ led to debt reduction
We look at Aban’s FY11 annual report and examine cash flow for the
year. Aban managed to reduce debt by Rs11.2 bn (c.US$250 mn or
8% of total) in FY11, while it generated Rs22.2 bn ($490 mn) in
operating cash flow (up 7% YoY). Despite the improvement, most of
the operational cash was absorbed back in the business: (1) Rs8.9 bn
in interest, (2) Rs2.3 bn in taxes, (3) Rs5.6 bn in capex (likely on the
refurbishment of rigs) and (4) Rs4.7 bn on higher working capital. The
reduction in debt is then largely attributable to the insurance money
received (Rs.10.7 bn for the Aban Pearl) and the proceeds from the
cancellation of the Deep Venture contract in April 2010. This is
disappointing, as Aban needs to use operational cash flow to reduce
its huge debt. With most assets now deployed, capex levels should fall.
The increase in working capital through FY11 is surprising, for what is
essentially a leasing business. While liabilities have fallen (provisions
are up YoY), loans and advances are up Rs967 mn (US$21 mn YoY).
Interestingly, ‘Sundry Debtors outstanding for more than 6 months’ is
up Rs2.3 bn (US$52 mn) YoY. The company suggests this might
relate to a dispute (for an Indian rig), that has since been resolved,
while the increase in loans/advances is related to business-related
deposits. These issues should not recur in FY12, while operational
cash flow should help reduce debt further.
Net worth falls despite profit due to adverse currency
Aban’s net worth fell Rs469 mn YoY, despite Rs943 mn in PAT less
dividends. While INR:USD was at similar levels around 31 March 2010
an 31 March 2011, the appreciation in the NOK (Aban has several
NOK bonds) compared to the dollar has likely hurt it. Aban does not
pass the resultant translation losses through the P&L, but directly
adjusts equity. The rupee has depreciated 8% against the dollar since
31 March 2011. We estimate this can further erode 27% of Aban’s
book. Given the dollar-denominated nature of its business, a weaker
rupee will help expand INR profits and compensate for the net worth fall.
Valuations tricky
We update our model for the FY11 annual report and introduce FY14
numbers. Given the large balance sheet leverage estimates are very
sensitive to assumptions; yet we see Aban trading at 3.2x FY13E EPS,
which is cheap relative to comps. However, Aban appears expensive
on EV/EBITDA valuations. Global driller multiples have contracted
from 8 times at start of FY12 to 6.2 times now. If Aban were to trade at
6.2 times as well, equity would be worth Rs240/share (using FY12
end net debt numbers). If the EBITDA multiple were to expand to 8x;
Aban’s equity would be worth Rs1065/share, or 171% upside.
While Aban has seen a material improvement in utilisations and
operations, upside to stock price may depend on: (1) an expansion of
global EBITDA multiples or (2) the market’s willingness to look at Aban’s
earnings multiples, which can happen if Aban consistently delivers on
estimates. Our FY12/13E EPS change -3%/14%, and our target price
changes to Rs863 (from Rs811). We maintain OUTPERFORM.
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