Strong revenue visibility-Upgrade to BUY

August 8, 2011 n APAT at Rs941 mn (-54% yoy) marginally below expectation

Reco Buy CMP Rs454

Previous Reco Accumulate Target Price Rs580

-5.0 /-9.2 5,211 17,306

on account of lower than expected revenues. Revenues declined 13% yoy & (8.6% qoq) below estimates

n EBIDTA at Rs4.6 bn (-12% yoy), came below est led by lower

EPS change FY12E/13E (%) Target Price change (%) Nifty Sensex

revenues. Margins though up100 bps yoy to 62.7%, declined 331 bps qoq due to 55% jump in insurance charges

n Only 2 rigs idle-see strong cash flow visibility for Aban-USD

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

400 mn of CFO over FY11-13, leading to accelerated deleveraging-Leverage ratios could improve 40% over FY11-13E & 0.8X P/B attractive providing downside support to stock. Upgrade to BUY. Target Rs580

1M

3M

6M 12M

n Stock decline of ~20% over last 3M, makes valuation of 4.9 X

(19) (25) (33) (51) (12) (21) (31) (49)

Relative Price Chart

925 Rs % 10 830 -2

Lower operating days lead to lower than expected Q1FY12 performance

Abans Consolidated Q1FY12 EBITDA of Rs4.6bn (-12% yoy) came in below estimates of Rs4.8bn on account of lower than expected operating days for the Aban IV. This led to lower than expected revenues for the quarter at Rs7.3 (vs est of Rs7.7 bn) which declined 13% yoy & 18.6% qoq. The 18.6% sequential revenue declined was on account of idle status of Aban III & V which are undergoing periodic dry-dock. Abans EBIDTA margins though up 100 bps yoy to 62.7%, declined 331 bps qoq due to 55% jump in insurance charges . Insurance charges jumped due to higher renewal premium charges for rigs. With 60% decline in other income Abans 1QFY11 APAT before minority (RPAT included forex losses of Rs55mn) at Rs0.94 bn decline 15% yoy (-52% yoy), lower than our estimates of Rs.98 bn. Q1FY11 APAT included income from Deep Venture (Abans 50% JV which got terminated in Q3FY11) and hence Aban APAT after minority declined 54.2% yoy.

735

-14

640

-26

545

-38

450 Aug-10

-50 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11

Aban Offshore (LHS)

Rel to Nifty (RHS)

Source: Bloomberg

Stock Details
Sector Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn) Offshore Oil Field Services ABAN@IN 87 2 43 932/426 19/425 349106 4.2

Cash generation of ~ USD 400 over FY11-13 to accelerate de -leveraging

During the quarter Aban Abraham commenced its 5 years operation in Brazil. Further With Aban III & V ready to commence operation from 3QFY12, Aban now is left with only 2 rigs idle. Such healthy deployment status arms Aban with contracted revenue backlog of ~USD2 bn and revenue visibility of 95% for FY12E. We estimate Aban to generate CFO of ~ USD400mn over FY11-13E, leading to accelerated deleveraging of its stretched balance sheet (FY11 D: E of 5.7X). We see Aban D: E reducing sharply from current levels of to 3.4 for FY13.

Shareholding Pattern (%)

Jun-11 Mar -11 Dec-10 Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

Valuation at 4.9 PER and 0.8X P/BV attractive Upgrade to BUY

Stock decline of ~ 20% over last 3 months have made current valuations at 4.9X FY12 PER and 0.7X FY12 P/BV attractive and could provide downside support to stock. We upgrade our rating from ACCUMULATE to BUY. However we are downgrading FY12E earnings by 5% (EPS of Rs90.3) and lower our target price to Rs580 (as compared to Rs645 earlier) due to lowering of our EV/EBIDTA multiple for Aban from 6.5X to 6X earlier led by decline in valuation of its international peers. Key Financials
YENet Sales 33587 33472 32393 35079 EBITDA (Core) 21004 21868 19651 20542 (%) 62.5 65.3 60.7 58.6 APAT 5518 5670 3929 5029 EPS (Rs) 119.4 122.9 90.3 115.6 EPS % chg 54.4 2.9 -26.5 48.5 RoE (%) 15.0 23.3 16.9 17.9 P/E 3.7 3.6 4.9 3.8 EV/ EBITDA 7.3 6.1 6.4 5.7 P/BV 1.0 1.0 0.8 0.7

53.8 8.6 3.7 5.7 28.2

53.8 8.5 4.3 6.7 26.7

53.0 7.1 5.3 8.0 26.5

Ajit Motwani ajit.motwani@emkayglobal.com +91 22 6612 1255 Chandan Asrani chandan.asrani@emkayglobal.com +91 22 6624 2241

Mar FY10 FY11 FY12E FY13E

Emkay Global Financial Services Ltd

Result Update

Aban Offshore

Aban Offshore

Result Update

Results table
Rs mn Revenue Expenditure as % of sales Consumption of RM As % of Sales Employee Cost As % of Sales Other expenditure As % of Sales EBITDA Depreciation EBIT Other Income Interest PBT Total Tax Adjusted PAT (Profit)/loss from JV's/Ass/MI APAT after MI Extra ordinary items Reported PAT Reported EPS Q1FY11 8,425 3,223 38.3 333 3.9 884 10.5 2,006 23.8 5,202 1,291 3,911 143 2272 1,783 678 1,105 952 2,057 -3496 -1439.0 47.3 Q2FY11 8,281 2,718 32.8 276 3.3 870 10.5 1,572 19.0 5,563 1,230 4,333 24 2406 1,950 757 1,193 -302 891 -139 752 20.5 Q3FY11 7,780 2,614 33.6 319 4.1 850 10.9 1,445 18.6 5,166 1,186 3,980 94 2329 1,745 557 1,187 -433 755 -135 620 17.4 Q4FY11 8,987 3,050 33.9 436 4.9 692 7.7 1,922 21.4 5,937 1,200 4,737 2231 2,506 538 1,968 0 1,968 -451 1,517 45.2 Q1FY12 7,313 2,725 37.3 279 3.8 759 10.4 1,687 23.1 4,589 1,231 3,357 58 2166 1,249 307 941 0 941 -55 886 21.6 -11.8 -4.6 -14.2 -59.7 -4.6 -30.0 -54.6 -14.8 -100.0 -54.2 -98.4 -161.6 -54.2 -52.2 -87.8 -41.6 -52.2 -2.9 -50.2 -42.9 -52.2 -22.7 2.6 -29.1 -15.9 -12.3 -14.1 9.8 -16.2 -36.1 YoY (%) -13.2 -15.5 QoQ (%) -18.6 -10.7 YTDFY12E 7,313 2,725 37.3 279 3.8 759 10.4 1,687 23.1 4,589 1,231 3,357 58 2166 1,249 307 941 0 941 -55 886 21.6 YTDFY11 8,425 3,223 38.3 333 3.9 884 10.5 2,006 23.8 5,202 1,291 3,911 143 2272 1,783 678 1,105 952 2,057 -3496 -1439.0 47.3 YoY (%) -13.2 -15.5 -2.6 -16.2 -3.5 -14.1 -1.1 -15.9 -3.1 -11.8 -4.6 -14.2 -59.7 -4.6 -30.0 -54.6 -14.8 -100.0 -54.2 -98.4 -161.6 -54.2

Margins (%) EBIDTA EBIT EBT PAT Effective Tax rate 61.7 46.4 21.2 13.1 38.0 67.2 52.3 23.6 14.4 38.8 66.4 51.2 22.4 15.3 31.9 66.1 52.7 27.9 21.9 21.5 62.7 45.9 17.1 12.9 24.6

(bps) 100 -52 -409 -24 -1340

(bps) -332 -680 -1081 -903 315 62.7 45.9 17.1 12.9 24.6 61.7 46.4 21.2 13.1 38.0

(bps) 100 -52 -409 -24 -1340

Downgrade FY12E earnings by 5.0 %

FY12E Earlier Revenues EBITDA Margin (%) PAT EPS 32851 19960 60.8% 4136 95.1 Revised 32393 19651 60.7% 3929 90.3 Change -1.4% -1.6% -9.7 -5.0% -5.0% Earlier 35079 20542 58.6% 5029 115.6 FY13E Revised 35079 20542 58.6% 5029 115.6 Change 0.0% 0.0% 0.0 0.0% 0.0%

Emkay Research

8 August 2011

Aban Offshore

Result Update

Financials
Income Statement
Y/E, Dec (Rs. m) Net Sales Growth (%) Total Expenditure Manpower Costs Consumption of stores Repairs & Rentals to machinery Other Exps EBIDTA Growth (%) EBIDTA % Depreciation EBIT EBIT margin (%) Other income Interest EBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adjusted PAT After JVs/Ass/MI E/O items Reported PAT Growth (%) FY10 33587 10.1 12583 2884 1303 1087.7 7307 21004 21.2 62.5 4616 16388 48.8% 218 9768 6838 2571 37.6 4268 100.6 12.7 1250 5518 -2408 3110 -42.5 FY11 33472 -0.3 11604 3295 1364 901.0 6044 21868 4.1 65.3 4907 16961 50.7% 261 9238 7984 2531 31.7 5453 27.8 16.3 217 5670 -4221 1450 -53.4 FY12E 32393 -3.2 12743 3619 1498 989.3 6637 19651 -10.1 60.7 5024 14627 45.2% 280 8585 6322 2067 32.7 4255 -22.0 13.1 326 3929 0 3929 171.0 FY13E 35079 8.3 14536 4533 1876 1239.3 8314 20542 4.5 58.6 5024 15519 44.2% 280 8084 7715 2360 30.6 5355 25.8 15.3 326 5029 0 5029 28.0

Balance Sheet
Y/E, Dec (Rs. m) Equity share capital Preference Capital Reserves & surplus Networth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax Total Liabilities Gross Block Less: Depreciation Net block CWIP (incl cap adv) Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Current Liab & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY10 87 3260 18459 21806 0 138622 3018 141641 436 163883 173147 19634 153513 131 4951 14629 2478 7691 2360 2100 9341 7891 1450 5288 163883 FY11 87 3260 19399 22746 0 126255 3018 129274 436 152456 159435 24541 134894 0 4951 21350 2230 7434 9585 2100 8739 7289 1450 12611 152456 FY12E 87 3260 23145 26492 0 112980 3018 115999 436 142926 159435 29565 129870 0 4951 16510 2365 7883 4161 2100 8404 6954 1450 8106 142926 FY13E 87 3260 27991 31338 0 103980 3018 106999 436 138772 159435 34588 124846 0 4951 17979 2537 8458 4884 2100 9004 7554 1450 8975 138772

Cash Flow
Y/E, Mar (Rs. mn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY10 4430 4616 9717 1991 2131 -2584 20301 -3935 16366 48 8097 4211 6982 -24278 -10307 -478 0 -19 -28099 -3588 5948 2360 FY11 7723 4907 9238 0 -98 -2531 19239 9623 28862 261 0 261 0 -12367 -9238 -509 0 217 -21897 7225 2360 9585 FY12E 6042 5024 8585 0 -919 -2067 16665 0 16665 280 0 280 0 -13275 -8585 -509 0 0 -22369 -5424 9585 4161 FY13E 7435 5024 8084 0 -146 -2360 18036 0 18036 280 0 280 0 -9000 -8084 -509 0 0 -17593 723 4161 4884

Key Ratios
Y/E, Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA Working Cap Cycle (days) 7.4 6.6 24.8 6.1 5.4 25.9 4.7 5.6 37.1 3.6 4.9 35.8 3.7 2.6 1.0 4.6 7.3 0.8 3.6 3.2 1.0 4.0 6.1 0.8 4.9 2.1 0.8 3.9 6.4 0.8 3.8 1.9 0.7 3.3 5.7 0.8 119.4 170.2 426.5 3.6 122.9 138.7 448.1 3.6 90.3 205.9 534.2 3.6 115.6 231.2 645.7 3.6 FY10 62.5 12.7 9.6 15.0 11.7 FY11 65.3 16.3 10.9 23.3 11.6 FY12E 60.7 13.1 10.1 16.9 10.8 FY13E 58.6 15.3 11.3 17.9 11.9

Emkay Research

8 August 2011

Aban Offshore

Result Update

Recommendation History: Aban Offshore ABAN IN

Date 27/05/2011 25/02/2011 11/02/2011 08/11/2010 Reports Aban Offshore Q4FY11 Result Update Aban Offshore Company Update Aban Offshore Q3FY11 Result Update Aban Offshore Q2FY11 Result Update Reco Accumulate Accumulate Accumulate Hold CMP 541 542 570 841 Target 645 680 680 875

Recent Research Reports

Date 02/08/2011 01/08/2011 28/07/2011 28/07/2011 Reports Shree Cement Q1FY12 Result Update Grasim Industries Q1FY12 Result Update ACC Cement Q2CY11 Result Update Ambuja Cement Q2CY11 Result Update Reco Accumulate Accumulate Hold Reduce CMP 1,750 2,193 1,020 133 Target 2,050 2,600 1,100 140

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