Aban Offshore climbs on positive broker comments

Shares of Aban Offshore Ltd. jumped on Thursday in a rising market after Kotak Institutional Equities upgraded the stock to "Buy", citing the recent correction in the stock and the spike in crude oil prices. Separately, Avendus India Equity Research came out with a positive report on the stock. "We would advise investors to capitalise on the recent correction in Aban’s stock price as we see the risk-reward balance favorable at the current juncture. We highlight that there has been no change in the business conditions to justify the underperformance over the past three months," Kotak said in its note. "Key risks stem from debt-repayment capability," Kotak added.



Aban's stock has corrected 12% in the past three months versus BSE Sensex’s rise of 0.4% in the same period. Kotak sees the recent surge in crude oil prices as positive for global E&P spending. That should augur well for Aban as some of its contracts are due for renewal in early CY 2011 and may command a higher day-rate versus market expectations, Kotak said. Kotak has upgraded its rating on Aban to 'BUY' from 'ADD' given a potential upside of 23% to its revised DCF-based target price of Rs 915.

Avendus India Equity Research in its note said that higher South Asian regional demand on account of the committed exploration expenditure is likely to lead to high rig utilization and firm rig day rates. "We believe demand for jackup rigs is likely to be robust in South Asia on account of the committed exploration investment under NELP in India," Avendus said. It has estimated higher revenues due to improved rig utilization. The crude price scenario has been favorable for rig providers for the past six months; hence, a re-rating of the implied P/E is likely, Avendus said.