Retention Rewards - Aban Offshore

Aban Offshore was recommended in the Choice Scrip column of Dalal Street Investment Journal - Issue Oct 29 - Nov 11 2007, at a price of Rs 4,250.10. The scrip shot up to reach a 52-week high of Rs 5,555, giving an over all appreciation of 30.70 per cent since our recommendation. The market correction, however, brought the scrip down to its current price of Rs 2990.46. Since the recommendation, it has fallen 29.63 per cent from the recommended price. AOL is India’s largest offshore drilling setup in the private sector. The company provides oil field services to facilitate offshore exploration in India and abroad. It is also engaged in generation of power through wind turbines.

AOL has been a consistent performer in the last four years, both in terms of its topline as well as its bottomline growth. Its FY08 figures indicate the same trend. It  has been quite aggressive in winning new contracts. Aban has contracts running in to more than Rs 7,000 crore, which are to be executed over the next three years. This good order-book position gives good revenue visibility for AOL. The company recently bagged a contract from ExxonNeftegas, which is expected to generate a revenue of $34 million in an estimated period of 160 days. That apart, it has also received two letters of intent. One of these contracts has a duration of around four years and an estimated revenue of around $300 million.

What augurs well for the company is the escalating demand for its rigs. The per-day rate for rigs has gone up substantially, from $60000 to $160000 in the last three years and are expected to stay firm. This would give a good push to Aban's revenues in the coming years.