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Buy Aban Offshore + HCL Technologies – Citigroup

August 14, 2007

Citigroup research has revised the target price of Aban Offshore from Rs 2850 to Rs 3530. Deficits in several international markets should, however, result in absorption of newbuilds entering the market over the next 9-12 months without impacting day rates. The long-term outlook for the sector remains solid, with steadily rising long-term oil price expectations.

Citi has revised FY08E EPS downwards by 21% to factor in delays to the drilling schedules of a couple of rigs. FY09E EPS remains relatively unchanged, while they have modestly increased our FY10E EPS forecasts by 5%. Aban’s EPS is expected to be Rs 101 and Rs 354 for FY08 and FY09 respectively.

Citigroup analyst has maintained a BUY on HCL Technologies with a target price of Rs 400. HCL Tech’s Q4FY07 results were in-line with expectations – higher than expected revenue growth (+9.2% qoq in US$-terms) but lower than expected margins (~170bp qoq) resulted in EBITDA of $85m (as against expectation of $86m). Margins were lower on account of INR – net income was significantly higher due to forex gains.

Infrastructure services reported another strong quarter with revenues growing 18% qoq. IT Services reported sequential growth of 7.6% qoq. Volume growth was 6.5% qoq.

HCL Tech management guided to ~30% growth for FY08 and indicated that margin expansion should continue. HCL Tech now has ~Rs.33 per share of cash and dividend yield of 2.5%. EPS growth over the next two years is likely to be very modest and the company is expected to report and EPS of Rs 18.34 and Rs 21.85 for FY08 and FY09 ending in June, respectively.

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