Stock at Bottom Buy Aban

Aban Offshore – Target Price Rs.579

 Buy rating on Aban Offshore is reiterated with a target price of Rs.579 over one year.
 Aban Offshore is expected to charter four rigs by the middle of 4QFY12 as against the earlier expectation of 2QFY12. Tenders have been announced for two rigs.
 Potential re-charter of the ONGC rigs is expected to boost the cash flow clarity. Re-charter of rigs will reduce the uncertainty on FY12 and FY13 cash flows.
 EBITDA margin is expected to stabilize at 63% over FY12-14. However, EPS estimates FY12 –FY14 are cut due to conservation assumptions.
 Working capital requirements increased in FY11 due to payment delays. However, this would normalize at 80 days of revenue.
 Debt financing seems imminent but valuations look attractive. Even at a conservative approach towards re-chartering of rigs, it seems that there is upside potential to the stock from the current level because Aban is currently traded at its trough valuation.