Recommendation: Buy
Current price: Rs 2,095 (at the time of publishing this tip)
Price target: Rs 3,569
Key points:
- Aban Offshore has signed a letter of agreement with Husky Oil China in relation to the possible deployment of the jack-up rig Deep Driller 5 offshore China for a three firm wells + three optional wells programme. The revenues from the firm period of the contract (with an estimated duration of around 180 days) are estimated to be around USD 38.7 million (Rs 178 crore). The deployment is to commence in direct continuation of its present contract, which is expected in the first quarter of 2009. The day rate for the contract works out to $2,15,000.
- The previous contract with PTTEP International, which ends on December 2008, was at a day rate of $1,90,000. The contracts of four of the Sinvest’s assets— Deep Driller 2, Deep Driller 3, Deep Driller 4 and Deep Driller 5—are set to expire soon. Though the day rates of this order are pretty good another short-term contract, particularly in the scenario of likely softening in day rates, has led to a negative sentiment build up in the stock. However, the management hopes to bag a few long-term contracts for its rigs, particularly from the Iranian region. Such long-term contracts in the future would lead to an improvement in the sentiments.
- The concerns have been overdone for this stock. At the current market price of Rs 2,095, the stock is available at attractive valuations and is quoting at 4.3x FY2010 estimates and at an enterprise value (EV)/EBDITA of 3.8x.
- I maintain Buy recommendation on this stock with a price target of Rs 3,569.
