It had borrowed to fund an acquisition and increase its fleet of drilling rigs. However, the global economic slowdown hit the exploration industry and Aban, too, was affected.

The industry situation is much better now, though not as euphoric as a few years ago. Aban has deployed 17 of the 20 rigs it owns and its recent contracts have been at relatively good day rates. But the combination of the slowdown and some key assets not being deployed is already showing an adverse effect.

In the quarter ended 30 September, net sales declined by 14.6% to Rs703 crore and profit after tax fell to Rs28.4 crore from Rs237 crore in the year-ago period. Interest outflow, at Rs261 crore, was one of the major reasons for the sharp drop in profit.

The original plan was to grow its assets aggressively, deploy them and use the cash flows to service debt. With the slowdown playing spoilsport, the firm has had to resort to fresh fund-raising.

Troubled waters: An Aban Offshore deep drilling rig.

Its current cash flows will simply not be enough to service these, and hence, the need to raise equity.

But Aban’s position is likely to improve, unless there’s another downturn in the oil exploration industry. It has completed most of its major capital expenditure programmes and so cash flows from the business are available, mostly for repaying debt.

It has also changed its strategy. The firm will seek longer-duration contracts for better utilization rates and stable cash flows.

It is also looking to diversify its revenue stream by including more deep-drilling offshore assets and by providing oil and gas production services.

While there are these positives, investors continue to be concerned about the mountain of debt, due to which valuations are at low levels of five times consensus estimates for FY11.

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