Wednesday, February 1, 2012

>ABAN OFFSHORE: Lower operating days for Aban III & V drags Q3FY12 performance

■ Lower operating days for Aban III & V drags Q3FY12 performance
Aban’s Q3FY12 revenues at Rs8.6bn, +13% qoq came in below estimates of Rs9.2bn led by lower revenue days for Aban III & Aban V. Aban III operated for just 30 days while Aban V got operational in October. Consequently EBITDA at Rs5.06bn though + 9% qoq came in below estimates of Rs5.3 bn led by lower revenues. On the cost front other expenses at Rs1.67bn, jumped 16.5% qoq due to higher mobilization expenses for Aban III and Aban V. Interest expenses came in at Rs2.57bn (+10% yoy) significantly higher than estimates of Rs2.4bn due to increase in LIBOR and the sharp INR depreciation against USD this quarter. Interest expenses could go up further up led by recent re-financing leading to higher interest rates (12% vs 9.3%). Lower revenues & higher interest expenses resulted in Q3FY12 net profit of Rs0.73bn (-3% yoy, 7.7% qoq) vs est of Rs1.07 bn. Led by disappointing 3Q earnings & higher interest expenses, we downgrade our EPS estimate for FY12/12 by 9.1 %/ 3.8%. We also lower our target price to Rs465 (Rs485 earlier) to factor in earnings downgrade.

■ Aban redeems bonds worth $160 mn – coupon rate jumps steeply to 12%
Aban recently redeemed bonds aggregating to USD USD 160 mn. The redemption is financed through mix internal accruals (USD 40 mn) & debt refinancing (USD 120mn). The refinance of USD 120 mn is done through a fresh bond issue with coupon rate of 12% & repayable over 4 years. The coupon rate at 12% (v/s 9.3% for the redeemed bonds) is negative for Aban’s already stretched balance sheet. The management highlighted that the sharp jump in the refinance rate is on account of unwillingness European to extend fresh credit in current uncertain global environment. Next re-finance of USD157 mn could also be on similar lines-Interest cost pressure to intensify- Downgrade to HOLD

■ Apart from the higher refinance rate of the new bond issue at 12% we believe that
Aban’s next repayment obligation (due Mar-12) worth ~USD157 mn could also see increase in its coupon rate which in turn will further intensify interest cost pressure witnessed in 3QFY12. Though Aban boasts of revenue backlog of ~$1.9 bn over FY12- 15E, revenue visibility stands at 65% for FY13 as 6 rigs are due for contract renewal in H2FY13. Lower FY13 visibility & intensifying interest cost pressure leaves little upside for stock out performance after a recent 30% appreciation-Downgrade to HOLD.

To read full report: ABAN OFFSHORE