Recommendation: Buy
Current price: Rs 750 (at the time of publishing this tip)
Price target: Rs 2,600 
Key points:
- Aban Offshore, one of the largest oil drilling companies in Asia, is benefiting from increased oil exploration and production activities globally. The resulting robust demand environment is leading to firm day rates for the company’s assets.
- High day rates, combined with the company’s efforts to substantially ramp up its asset base through organic and inorganic initiatives, are likely to benefit the company going forward. In the past couple of months, the company has announced new contracts worth $1.3 billion, thereby increasing the visibility of its revenues. The visibility of Aban’s revenue remains strong, particularly in view of its $3.2-billion worth of committed contracts. The deployment of its idle assets going forward would act as an important trigger for earnings.
- This stock exhibited return on equity of over 34% in FY2008, and is expected to outbid earlier calculations with an estimated return of around 75% in FY2009. At the current market price, the stock trades at 2.8x FY2009 and 1.7x FY2010 estimated earnings.
- I am quite optimistic about this stock and hence would maintain a Buy call with a price target of Rs 2,600 over next 8-9 months.
