Aban Offshore Disappointing performance

Aban Offshore

 

Disappointing performance 

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BUY

 

CMP: Rs484                                     Target Price: Rs880

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Aban Offshore’s Q3FY2009 pre-exceptional consolidated net profit at Rs 1.16 bn is sharply below estimates primarily because of lower than expected EBIDTA margins and higher tax rate.  Reported profit which includes forex gain stood at Rs2.56 bn recording a 312% jump yoy. Revenues for the quarter stood at Rs8.36 bn ( in line with expectation) registering a yoy growth of 40% yoy - qoq basis the growth is just 1.5% as DD-6 the rig that go delivered in October 2008 remained idle for the entire quarter. EBIDTA for the quarter stood at Rs4.7 bn registering a growth of 49.2% yoy, the same was however below expectation primarily because of higher than expected other expenditure on account of idle rig DD-6.

Aban Pearl & Aban Abraham which were expected to commence operations in January 2009 have not yet started operations on account of delay in obtaining clearances by the operator. On account lower than expected profitability and delay in commencement of operation by rigs mentioned above we are downgrading our FY2009 earnings estimates by 35% and FY2010 estimates by 20%.  Our EPS estimates now stands at Rs170 for FY2009 and Rs337 for FY2010. 

Following the sharp decline in price of crude oil, globally oil services stocks have significantly unperformed and Aban was not an exception. Given the bleak outlook on global economic growth, crude oil price may continue to remain subdued and oil services stock including Aban might continue to under perform. However after a sharp fall in its stock price Aban trades at undemanding valuation of 2.8X its FY2009 earnings and 1.5X FY2010 earnings given its high revenue visibility – 95% for FY2009 and 69% for FY2010E. We agree that Aban’s leverage at 4.5X FY2010 is excessively high. But the leverage need to be seen in the light of close to USD 3 bn of revenue backlog which is 4.2X its FY2009E revenue of USD 715 mn. Given its high revenue backlog and compelling valuation we remain positive on Aban and maintain our BUY rating with a revised price target of Rs880.