About the Company
Aban Offshore Ltd. is the largest drilling entity in the private sector in India offering world class drilling and other services. The company provides oil field services for offshore exploration and production of hydrocarbons to the oil industry in India and abroad. They offer a diverse range of offshore drilling services to clients in India and abroad such as exploratory services, Drilling services, Production of hydrocarbons, Manning and management, Drill ship Aban Abraham has been rated among the top-10 out of the seventy rigs operating in Brazil Latest Results
Despite challenging conditions, the company reported a topline of Rs 169.97 crores for Q2FY14, which was a growth of 4.78% QoQ vs.Rs.162.22 crores for Q1FY14 and fall of 12.75%YoY vs. Rs.194.80 crores for Q2 FY13. The net profit came in at Rs.1.26 crores which is a gain off 107.14 % rise QoQ vs. loss of Rs.16.80 crore for Q1FY14; it was up 114.16% YoY vs. Rs.8.90 crore for Q2 FY13. The EPS has come in at Rs 0.29 for Q2FY14, which is fall of 107.60% rise QoQ vs. Rs. (3.69) in Q1 FY 14, it has risen 114.25% YoY vs. Rs (2.04) in Q2 FY13.
Fundamental Reasons
Market leader: Aban offshore is the largest offshore drilling service provider in the oil and gas sector in India and thus it is the market leader.
Diversified business: The Company is an active service provider in both deep and shallow waters. The Company provides drilling services for offshore exploration and production (E&P) of hydrocarbons globally. The company has an impressive client list like ONGC, Reliance, Shell Brunei, Shell Malaysia, Gujarat State Petroleum Corporation Ltd (GSPC), Hindustan Oil Exploration Co. Ltd, Cairn Energy (U.K), Chevron (Thailand), PEMEX (Mexico), Total E&P (Qatar) and Petrobras (Brazil).
Growing demand: The world primary energy productions grow that caught up with the consumption rates, growing 1.6% per annum from 2011 to 2030.Going forward, growth in production will be dominated by non- OECD countries, which will account for 78% of the world’s increase. These countries will supply 71% of the global energy production in 2030, up from 69% in 2011 and 58% in 1990. Deal between Iran and western powers: A deal has taken place between Iran and other western powers following which these powers would ease the sanctions on Iran and this would be a move in the right direction for energy consuming countries like India as the Iranian oil would now be available. This also opens up man oil exploration opportunities in the future and the company would benefit immensely from the same.
Revision in gas prices: The gas prices would be revised from $ 4.2/mmbtu to a price which would be arrived by a formula which was arrived at by the Rangarajan committee. The likely price would be $8.4 /mmbtu. This would provide an opportunity for exploring new blocks.
NELP 10: The government is mulling on opening the bids for the new energy licensing policy 10 so the company would give the company more traction to drill some new blocks which would have a potential in the future.
LNG policy: The LNG prices at which India imports gas is at $13 to $ 14/mmbtu. The demand is
expected to triple in the next 10 years. So, the government may change some policy and this would help the oil companies to explore more gas and give some tax and other sops.
Government measures: This agreement would offer automation services for O&G companies in India. 100 per cent FDI allowed in E&P projects/companies; 49 per cent allowed in refining Policies to promote investments in the industry such as New Exploration Licensing Policy (NELP) and Coal Bed Methane (CBM) Government incentives: The FDI limit for public sector refining projects has been raised to 49 per cent .100 per cent Foreign Direct Investment (FDI) is allowed in upstream and private sector refining projects.
Oil and gas sector the road ahead: The Indian Oil Ministry anticipates that the country’s energy demand would expand by more than double by 2035; from less than 700 mtoe today to around 1, 500 mtoe. Thus meeting this requirement is highly essential to ensure the nation’s economic growth. The Indian Government is not only working towards self-sufficiency in this regard, but is also devising operating philosophies and favorable framework of policies that would be instrumental for exploring and developing of energy resources in the most efficient way. The company would be benefit immensely in the future from all these policy initiatives.
Potential Risk in our view
Slowdown in the Economy: One of the major detriments of the decline in the volumes of loans would be the slow down in the economy. The OIL and gas sector and the retail consumption sector industries growth is linked to GDP, which takes into account overall housing and infrastructure development. Low credit growth may be due to the slowdown of GDP which we are experiencing currently.
Slowdown in the US Economy: The US economy had a two week shutdown related and the impact of this would be seen in Q3 and Q4 growth numbers. The recovery in US economy would be tepid.
E&P spend: North America is forecast to pause with almost flat year on-year spending in both the US and Canada during 2013.
Low crude prices: The E&P prices are directly linked to crude oil prices on both NYMEX and BRENT if the price falls below $90-95 per barrel then this would mean less exploration activates.
Alternate energy sources: Threat of substitutes may impact the company’s future. There are many
alternatives to oil and natural gas including coal, solar and wind power which are gaining importance both globally as well as in India.
Cost escalation: The Company operates in a capital intensive industry and hence rising costs in machinery and manpower may have an impact on margins.
Fair Valuation of Stock
Considering the past performance, present setup and a thing in pipeline, management is confident of
achieving their targets. We, based on the information and data available to us, expect the company to post a reasonable growth rate of ~20.% on top line in FY14. Company has provided a ROCE 10.17% which we expect to increase further going ahead. The Company currently trades at ~6.26 P/E which may see some further increase in current year upto ~ 8.75 P/E FY14E and the following year going up to ~8.25 P/E FY15E, we maintain our outlook to accumulate the stock on dips, for a price target of Rs.450-455 in the next 6-9 months.
Aban Offshore Ltd. is the largest drilling entity in the private sector in India offering world class drilling and other services. The company provides oil field services for offshore exploration and production of hydrocarbons to the oil industry in India and abroad. They offer a diverse range of offshore drilling services to clients in India and abroad such as exploratory services, Drilling services, Production of hydrocarbons, Manning and management, Drill ship Aban Abraham has been rated among the top-10 out of the seventy rigs operating in Brazil Latest Results
Despite challenging conditions, the company reported a topline of Rs 169.97 crores for Q2FY14, which was a growth of 4.78% QoQ vs.Rs.162.22 crores for Q1FY14 and fall of 12.75%YoY vs. Rs.194.80 crores for Q2 FY13. The net profit came in at Rs.1.26 crores which is a gain off 107.14 % rise QoQ vs. loss of Rs.16.80 crore for Q1FY14; it was up 114.16% YoY vs. Rs.8.90 crore for Q2 FY13. The EPS has come in at Rs 0.29 for Q2FY14, which is fall of 107.60% rise QoQ vs. Rs. (3.69) in Q1 FY 14, it has risen 114.25% YoY vs. Rs (2.04) in Q2 FY13.
Fundamental Reasons
Market leader: Aban offshore is the largest offshore drilling service provider in the oil and gas sector in India and thus it is the market leader.
Diversified business: The Company is an active service provider in both deep and shallow waters. The Company provides drilling services for offshore exploration and production (E&P) of hydrocarbons globally. The company has an impressive client list like ONGC, Reliance, Shell Brunei, Shell Malaysia, Gujarat State Petroleum Corporation Ltd (GSPC), Hindustan Oil Exploration Co. Ltd, Cairn Energy (U.K), Chevron (Thailand), PEMEX (Mexico), Total E&P (Qatar) and Petrobras (Brazil).
Growing demand: The world primary energy productions grow that caught up with the consumption rates, growing 1.6% per annum from 2011 to 2030.Going forward, growth in production will be dominated by non- OECD countries, which will account for 78% of the world’s increase. These countries will supply 71% of the global energy production in 2030, up from 69% in 2011 and 58% in 1990. Deal between Iran and western powers: A deal has taken place between Iran and other western powers following which these powers would ease the sanctions on Iran and this would be a move in the right direction for energy consuming countries like India as the Iranian oil would now be available. This also opens up man oil exploration opportunities in the future and the company would benefit immensely from the same.
Revision in gas prices: The gas prices would be revised from $ 4.2/mmbtu to a price which would be arrived by a formula which was arrived at by the Rangarajan committee. The likely price would be $8.4 /mmbtu. This would provide an opportunity for exploring new blocks.
NELP 10: The government is mulling on opening the bids for the new energy licensing policy 10 so the company would give the company more traction to drill some new blocks which would have a potential in the future.
LNG policy: The LNG prices at which India imports gas is at $13 to $ 14/mmbtu. The demand is
expected to triple in the next 10 years. So, the government may change some policy and this would help the oil companies to explore more gas and give some tax and other sops.
Government measures: This agreement would offer automation services for O&G companies in India. 100 per cent FDI allowed in E&P projects/companies; 49 per cent allowed in refining Policies to promote investments in the industry such as New Exploration Licensing Policy (NELP) and Coal Bed Methane (CBM) Government incentives: The FDI limit for public sector refining projects has been raised to 49 per cent .100 per cent Foreign Direct Investment (FDI) is allowed in upstream and private sector refining projects.
Oil and gas sector the road ahead: The Indian Oil Ministry anticipates that the country’s energy demand would expand by more than double by 2035; from less than 700 mtoe today to around 1, 500 mtoe. Thus meeting this requirement is highly essential to ensure the nation’s economic growth. The Indian Government is not only working towards self-sufficiency in this regard, but is also devising operating philosophies and favorable framework of policies that would be instrumental for exploring and developing of energy resources in the most efficient way. The company would be benefit immensely in the future from all these policy initiatives.
Potential Risk in our view
Slowdown in the Economy: One of the major detriments of the decline in the volumes of loans would be the slow down in the economy. The OIL and gas sector and the retail consumption sector industries growth is linked to GDP, which takes into account overall housing and infrastructure development. Low credit growth may be due to the slowdown of GDP which we are experiencing currently.
Slowdown in the US Economy: The US economy had a two week shutdown related and the impact of this would be seen in Q3 and Q4 growth numbers. The recovery in US economy would be tepid.
E&P spend: North America is forecast to pause with almost flat year on-year spending in both the US and Canada during 2013.
Low crude prices: The E&P prices are directly linked to crude oil prices on both NYMEX and BRENT if the price falls below $90-95 per barrel then this would mean less exploration activates.
Alternate energy sources: Threat of substitutes may impact the company’s future. There are many
alternatives to oil and natural gas including coal, solar and wind power which are gaining importance both globally as well as in India.
Cost escalation: The Company operates in a capital intensive industry and hence rising costs in machinery and manpower may have an impact on margins.
Fair Valuation of Stock
Considering the past performance, present setup and a thing in pipeline, management is confident of
achieving their targets. We, based on the information and data available to us, expect the company to post a reasonable growth rate of ~20.% on top line in FY14. Company has provided a ROCE 10.17% which we expect to increase further going ahead. The Company currently trades at ~6.26 P/E which may see some further increase in current year upto ~ 8.75 P/E FY14E and the following year going up to ~8.25 P/E FY15E, we maintain our outlook to accumulate the stock on dips, for a price target of Rs.450-455 in the next 6-9 months.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.