Aban Loyd Chiles Offshore
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs1,760
Current market price: Rs1,325
Price target revised to Rs1,760
Result highlights
- Aban Loyd Chiles Offshore's Q4FY2006 net profit at Rs22 crore is in line with our expectations. The net revenues for the quarter grew by 17% to Rs120 crore. The growth was due to the deployment of all the company's vessels in the quarter as compared to the partial deployment in Q4FY2005.
- During the quarter the operating profit margin (OPM) of the company declined by 2% year on year (yoy) to 57.3%, primarily because of the increase in the other expenditure and stores consumed. However the pleasing thing was that the margins of the drilling segment have improved by 2.8% to 37.1%.
- The company's interest cost has declined by 14.6% on a year-on-year (y-o-y) basis and by 27% on a sequential basis, as the company has substituted its high cost debt with the funds mobilised through its recent $100 million foreign currency convertible bond (FCCB) issue.
- The net profit for the quarter stood at Rs22.1 crore, a growth of 11.3% on a y-o-y basis and a growth of 20% on a quarter-on-quarter (q-o-q) basis.
In the wake of such high earnings visibility, drilling companies the world over are being valued at their FY2009 earnings potential. Similarly, Aban Loyd's full earnings potential will only be visible in FY2009 when it operates its full arsenal of 10 rigs and all of them are fully re-priced at today's high rates. Hence we shall ideally be valuing Aban Loyd on its FY2009 earnings. At the current market price of Rs1,325 the stock is quoting at 9.8x the company's FY2009E earnings per share (EPS) and 5x the company's FY2009E earnings before interest, depreciation, tax and amortisation (EBIDTA). Considering the high visibility of Aban Loyd's earnings and the possibility of the company going in for another acquisition in FY2007, we believe the stock's valuations are attractive. We maintain our Buy recommendation on the stock with a revised price target of Rs1,760. At our price target the stock will be discounting its FY2009 E by 13x and its FY2009 EBIDTA by 6.3x.