Report on Aban Lloyd

Aban Offshore Limited

Asia Al ternative Research | INDIA | Strategy: Buy & Hold

Jade Finance and Management Advisors LLP

www.jadellp.com Core Independent Research

Deleveraging to drive profit growth & valuations

Aban Offshore (ABAN) has recently taken some major initiatives to emerge out of the debt-trap it faced due to an leveraged-acquisition at the peak of the market cycle. The company has infused fresh equity to via QIP route and also refinanced its high cost debt worth Rs 2.1bn with low cost foreign currency loan. These initiatives would help the company to transform its balance sheet and pare down the leverage from ~3.5x in FY13 to ~2.3x in FY16E. Aban is the best placed oilservices firm to benefit from revival in Indian E&P capex led by regulations, and also catching up with improved rig-rates globally. We believe that the improvement in the earnings growth due to deleveraging and improving rig-rates would lead to better valuations for the company in the coming quarters. We initiate coverage on Aban with a BUY rating and target price of 1180, upside of 49%. Investment Rational

 The rigs of Aban are operating at 43-80% discount to the category average, as they are bound by long-term contracts executed in CY10-11 at the market’s bottom. The day rates would strengthen going ahead primarily because of the stronger demand of oil as well as newer and more complex areas coming under exploration and production going forward. A 20-30% rise in their rates is likely when the contracts come for renewal in next 2-3 years. We expect profit growth potential of 15-20% from repricing of rigs for the company. Aban is well placed to capture the next upturn in the E&P industry. The rig portfolio of the company consists of 18 assets with 50% of its existing rigs having average age of six years. It has two drill ships (Aban Ice and Aban Abraham) which are deployed under long term contracts that run through till FY17. The company would be able to garner better rig...