The Hindu Business Line : Aban Loyd Chiles: Buy

Investors with a long-term investment horizon can consider an exposure in Aban Loyd Chiles stock. However, given the prevailing market conditions, investors will have to reduce their return expectations and take exposures in small lots. Any dips from current levels linked to the broad market weakness may be used to step up exposures.

Given the revenue visibility for over two years and its strategy of achieving growth through constant addition to its fleet, Aban Loyd, which charters out rigs used in oil exploration, will be a good addition to the investment portfolio. The latest addition, `Aban Abraham', has been chartered this year and could bolster revenues for FY07 substantially. Another jack-up rig is under construction and will be added to the fleet by March 2008.

Recently, Aban announced that it is eyeing a majority stake in an Indonesian company, PT Apexindo. If this materialises, it could be a significant acquisition. It would give it access to nine onshore rigs and six offshore rigs. Currently, Aban owns six jack up rigs and two drill ships.

The fleet acquisition strategy could pay off given the current high charter rates for rigs. Most of the recent contracts that Aban has entered into for its rigs have been for three years and have been contracted at almost thrice the rate for its earlier contracts. This ensures that Aban gets the benefit of higher charter rates even if rates were to taper or stabilise after a couple of years.

Exploration activity has picked up world over and there is huge demand for rigs. A new rig takes at least two years for construction. Big investments are being planned and this could keep the demand going for the next few years. As there is a huge demand-supply mismatch, charter rates are expected to remain firm in the near term. If this trend persists, it will help in contracts renewals over a period of time.

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