>ABAN OFFSHORE: Asset placement to ease cashflow strain (AMBIT CAPITAL)

■ Two assets placed; day rate disappoints
As expected, Aban announced placement of two of its jackups namely, Deep Driller-1 (DD1) and Aban VII. While DD1 has been placed under contract with a leading domestic E&P operator at a day rate of US$112,000 for a period of one year (plus 2 optional periods of 6 months), Aban VII would work as an accommodation barge at a day rate of US$60,000 for a 6-week duration (~30% lower than our day rate expectation of US$130,000 on a blended basis). However, we also observe that Aban VII would incur marginal opex, implying lower impact (to the extent of ~20%) at the EBITDA level.

■ Two assets remain idle; Abraham deployment key
Aban currently has two idle assets - DD6 and DD8. Our understanding suggests that these assets are likely to be placed by 2QFY11E, against our earlier expectation of 1QFY11E. More importantly, drill ship Aban Abraham (current earnings US$325,000/day) completes its contracted term by end-1QFY11E. We believe that re-deployment of this asset would be critical to the company's earnings for FY11E and thereby to its ability to make good the debt obligation of ~US$375mn for the year.

■ 4Q PAT seen at Rs1.4bn
We expect the company to report PAT of Rs1.4bn (+58% QoQ) in 4QFY10E, implying FY10E earnings at Rs4.1bn (-24% YoY). Earnings for the quarter would be driven by deployment of Aban Pearl and FPU Tahara. We expect the company to report EBITDA of Rs6.1bn (+40% YoY; 17% QoQ), implying margins of 61%. We would like to highlight that our numbers do not factor in write-off of Rs1.95bn for investments made in Petrojack, an entity that has recently filed for bankruptcy. Hence downside risk to our numbers exist in case the write-off materialises.

■ Deleveraging story intact; Maintain BUY
We lower our earnings for FY11E by 13% and for FY12E by 4% driven by: a) lower-than-expected contracted day rates for DD1 and Aban-VII; b) delay in deployment of the two idle rigs; c) re-adjusting our day rate expectation from US$130,000k to US$120,000. Factoring in the above, our target price has been revised downward to Rs1,340 (Rs1,400 earlier). We, however, believe that the de-leveraging theme for Aban remains intact, with the recent deployments reaffirming our view. Hence we maintain our BUY recommendation on the stock.

To read the full report: ABAN OFFSORE