Downgraded Aban Offshore to 'reduce' - TP Rs.291 - Geojit BNP Paribas Financial Services

- Aban Offshore has been downgraded to 'reduce' from the 'buy' rating earlier with a target price of Rs.291 over one year. The stock is currently traded in the range of Rs.360. Earlier, the stock was rated to 'buy' with a target price of Rs.513.

- Downgrade of the stock is on the back of continued earnings decline, which in turn will further delay its de-leveraging story.

- It was assumed earlier that the company would enter FY14 on full utilization. This would allow it a year's cash flows to help it repay debt. However, it is seeing more delays in FY14 resulting in sharp earnings cut.

- Aban has five rigs, which were expected to be contracted during 2HFY13. However, its impact will be limited than earlier expected because Aban Ice (rig) is now facing idle time of four to five months, resulting in earnings decline along with delays in ABAN 7 and ABAN 8, which come off contracts in the near term.

- The stock is downgraded to 'reduce' on account of further earnings pressure due to delays in rig charters and idle time for its high margin deep water rig ( Aban Ice)

- TP is lowered to Rs.291 on account of the sharp cut in earnings of 31.5% in FY14 and 12.5% earnings cut for FY15.

- Due to the attractive de-leveraging nature of ABAN's business we had given it the benefit of doubt with respect to minor delays in re-chartering rigs

- we expected FY14 to be the year ABAN would have most of its rigs deployed. However, Aban Ice (working on an ONGC contract) is now expected to come off contract in March 2013 and go into maintenance checks for four-five months on account of regulatory changes.

- This alone reduces our FY14 the earnings forecast for FY14 by 12%. Investors may revisit the story in the event rig deployments are timely, resulting visibility.

Source : Equity Bulls

Keywords