Dear Sir,

The relevance of stock picking is more important than before as it is natural for investors to chase sectors or stocks in the meltdown which look cheap. One must stick to companies that have better management capabilities to manage the downtrend. With the markets slipping into a narrow range, speculation may not be a smart strategy and you may end up with a bad stock. Hence, it is recommended to invest in a fundamentally strong company such as Aban which has turned its balance sheet into black in past couple of years and the future performance seems to be promising.

We present to you an Overview on Aban Offshore Ltd.

Target Price: Rs.1000/- in next 12 months

About the company:

Aban Offshore Ltd (Aban) has been a key player in the Indian offshore rig market. With the acquisition of Sinvest, it has entered into the big league of international players and now has a global presence. Aban is well poised to leverage on industry dynamics.

Major issue before Aban is the issue of idle rigs, which are lying idle for quite sometime. We expect most of the rigs to get contracts in this quarter. We believe that the management is trying to put these rigs on long term contracts resulting in delays. However, considering huge debt position the company has, we believe that cash flows is the most important thing for the company in the current environment.

Financials For the Quarter Ended Dec'08:

Net sales for the quarter increased by 40% Y-o-Y and remained flat sequentially at Rs.8.36 bn.

Operating profits for the quarter increased by 50% Y-o-Y and 2.5% sequentially to Rs.4.7 bn.

PAT for the quarter was at Rs.2.5 bn (up 354% Y-o-Y and down 4% sequentially).

However, excluding other income of Rs.1.6 bn which included forex gains on the restatement of NOK denominated bonds at Sinvest, net profit stood at 1.2 bn up 87% Y-o-Y.

The management expects two rigs to start generating revenues by next month for which the contracts have already been received.

Valuations:

Aban Offshore is trading at 3.1x FY09 and 1.3x FY10 earning estimates, which is very cheap. Steep fall in oil prices has crunched the Oil Service Sector valuations globally and Aban has been more affected on account of very high leverage of 16x.

We believe that it is very important for Aban to get the contracts for idle rigs which will give cash flow to service the debt. There seems to be no problem in servicing the interest part.

At the same time, order book of nearly $3 bn gives us a comfort and we believe that given the certainty of cash flow on account of order book, it should not be difficult for the company to refinance the debt and expect the company to successfully pass through this difficult phase.

We value Aban at 3x FY10 estimates giving us a target price of Rs.1000. We recommend BUY on the stock.

AWATING FOR YOUR QUICK RESPONSE.

Thanks & Regards,

PMS Department