Saturday, May 15, 2010

>ABAN OFFSHORE: Loss of Aban Pearl a big blow… (ICICI DIRECT)

Aban Offshore Ltd (Aban) lost its prime asset Aban Pearl that was the only semi submersible rig in the company’s asset portfolio. It was the highest revenue earning asset for the company with a rate of $3,58,000 per day and ~80% operating margin with the contract extending up to October 2014. With the loss of this asset the earnings visibility has been severely impacted. This will also delay the recovery for Aban.

Loss of Aban Pearl to severely impact the performance
Aban Pearl was deployed off the coast of Venezuela with PDVSA and was the highest earning asset for the company earning $3,58,000 per day with 80% operating margin. The loss of the asset would impact the revenues (11 months) for FY11 by ~ Rs 505 crore and lead to a drop in EBITDA of ~ Rs 404 crore. It has also wiped out the future earnings potential from the asset. The loss could not have come at a worse time as the company is currently under strain due to its large debt and servicing capabilities.

Valuation: Loss of Aban Pearl would severely impact the earnings and profitability over the next two years and lead to reduced earnings visibility. However, the current market price has factored in the impact of the loss. We have valued Aban at 14% discount on a P/BV basis and 26% discount on a P/E basis to its global peers. We have also revised our rating from STRONG BUY to ADD with a price target of Rs 874. Any further dip in the stock price from the current level can be used to accumulate the stock.

To read the full report: ABAN OFFSORE