Aban Offshore

Current market price: Rs 2,460.45
Target price: Rs 3,569
Upside: 45.1%
Brokerage: Sharekhan

The capacity expansion in the jack-up rig market has led to increasing concerns of a fall in the utilisation rates and of a subsequent drop in the day rates. The demand-supply situation in the jack-up rig market is expected to remain tight going forward and the high utilisation level of over 90 per cent for the jack-up rigs is likely to be sustained.

Aban Offshore is expecting big order wins from the Iranian market, where the tender process is still going on. Aban would like to increase its presence in the deepwater segment and might either acquire new assets or a company that has ordered such deepwater assets, once these assets shave off their high premium.

The company's drilling rig, Aban Abraham has started undergoing sea trials and is likely to be deployed next month. The company has also signed an agreement for the deployment of the semi-submersible rig, Aban Pearl Offshore in Latin America for five years.

The contract is expected to start from the third quarter of FY09 with estimated revenues of Rs 3,150 crore. It plans to list Aban Singapore, the timing of the listing is not confirmed as of know. The brokerage feels that the concerns regarding Aban have been overdone and the stock is available at compelling valuations of 4.9x FY10E earnings.

CMP as on September 19, 2008.

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