**[investwise]** Aban Offshore-Another Downgrade

 

Aban Offshore-Weak Footing, Huge Debt Investors need to note that BP has lost $ 90 Bn in market cap, in one month since the Deepwater explosion that sank their rig in the Gulf of Mexico. Puny Aban stands no chance, either in terms of competitiveness or financial strength to avoid a liquidation or a financial sell-off. Indian managements are not at all equipped to run professionally global operations, even though their financial advisors keep selling them such ideas. Look at Wockhardt-another disaster story and Biocon, another struggler to which can be added Shasun Chem.   Uncertainties continue. With cashflow under pressure - one less rig after Aban Pearl sank and lower dayrates on recent contracts - uncertainty over Aban's earnings have heightened. We slash utilization assumptions for FY11-12 (including adjustment for Aban Pearl) and lower earnings estimates. In addition, there is little clarity about debt repayment and insurance claims. We downgrade Aban.    n       One-offs suppress 4Q earnings. Aban reported consolidated profit of Rs393m, which was below our estimates mainly due to exceptional costs on forex losses and diminution in value of equity investments by its foreign subsidiary.   n       Clarity on debt repayment yet to emerge. While Aban Pearl's destruction has sliced into FY11-12e earnings, we believe the company's debt repayment ability has also been affected. The company's announcement points to possible equity dilution in the near term in order to strengthen cashflows.   n       Lowering earnings. We lower FY11/12 earnings estimates by 37%/38%, adjusting for Aban Pearl and more conservative assumptions on other rig utilization rates.   n       Valuation. The higher discount against peer group is to account for renewed cashflow problems amidst higher leverage. Key risks: volatility in prices of crude, rig rates. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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