JV losses, exceptional items pull down profit at Aban Offshore

JV losses, exceptional items pull down profit at Aban Offshore

India’s largest drilling services provider, Aban Offshore Ltd, did better operationally during the September quarter, though losses from its subsidiary dragged net profit below expectations. The firm’s consolidated income rose 17.9% year-on-year (y-o-y) to 828.1 crore, though up only 1.7% quarter-on-quarter (q-o-q). With 19 out of 20 vessels deployed, operating profit rose y-o-y by 20.7% and q-o-q by 7.3%, to 558.7 crore. This was far better than the first quarter results, when operating profit was hit by the sinking of its high-margin asset, Aban Pearl.

Operating profit margin for the quarter was higher at 67.5% compared with 65.9% a year ago and 61.7% in the previous quarter. One key reason: other expenses were lower by 22.4% y-o-y, at around 113.7 crore.

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But Aban’s consolidated net profit of 75.2 crore was only 5.3% higher y-o-y. Pulling it down was the 30.2 crore loss from its joint ventures (JVs) and a 13.9 crore write-off of loss on investment in its Norwegian firm. On a stand-alone basis, net profit at around 119 crore was around 4.3 times higher than the year-ago period.

The deployment of three idle rigs helped. A report by Prabhudas Lilladher Pvt. Ltd says, “All three are likely to commence their charters by November-December 2010, which will result in H2 FY11 looking stronger than the first half."

Oil and gas analysts expect an improvement in the sector, given a weak dollar and the winter season, when oil rates perk up. The moot question is whether Aban will benefit from this, given that its fleet is relatively old and most of its rigs are contracted up to the end of calendar year 2012. This could restrict any major upsides in income and earnings until fiscal 2013.

The quarter saw no relief on interest costs, which were around 29% of total income compared with about 26% in the previous sequential quarter. Repayments, however, reduced consolidated debt from 14,000 crore in end-March to 13,200 crore in end-September. Analysts say that there could be equity issuance to raise money to repay debt during fiscal 2011.

Aban shares were marginally higher at 846 post results. High debt coupled with a possible equity dilution could cap earnings, despite an upside in income during fiscal 2011.

Graphic by Yogesh Kumar/Mint

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