ABG Profit to Climb 25% This Year on Offshore Rigs

ABG Shipyard Ltd., India’s biggest non-state shipbuilder, expects profit to increase 25 percent this year, aided by gains in its year-old offshore oil-rig business. Net income for the year ending March 31 will probably climb to 2 billion rupees ($50 million) from 1.6 billion rupees a year earlier, Chief Financial Officer Dhananjay Datar said yesterday in an interview in Mumbai, where the company is based. Revenue may climb 39 percent to 13.5 billion rupees. ABG will report third- quarter profit next month.
ABG, which entered the rig market with contracts from Essar Oil Ltd. last year, aims to build up the business by 2011 as demand slumps for bulk carriers amid a global recession. The company is betting on new orders as Oil & Natural Gas Corp., India’s biggest energy exploration company, and rivals sign production accords with the government on 68 recent discoveries.
“The offshore business will continue to dominate ABG’s source of revenue now that there is a complete lack of demand for bulk carriers,” said Jigar Valia, an analyst at Parag Parikh Financial Services in Mumbai, with a “sell” recommendation on ABG Shipyard shares. “While the fear of order cancellation looms over every shipbuilder, ABG’s ability to build different kinds of ships gives it the flexibility when the economic cycle is down.”
Profit for the six months ended Sept. 30 rose 8 percent to 731 million rupees. Revenue grew 34 percent to 5.6 billion rupees.
Shares of ABG Shipyard, which started operations in 1989, have slumped 90 percent this year on concern new order inflows may slow. They rose as much as 7.3 percent and traded at 94.65 rupees, up 0.5 percent, as of 10:32 a.m. in Mumbai today. Local rival Bharati Shipyard Ltd. has fallen 91 percent since January.
Offshore Orders
ABG’s existing offshore contracts include a $180 million order for supplying four platforms and building two rigs for Mumbai-based Essar Oil for $480 million, Datar said.
ABG is expanding its Dahej port in the western Indian state of Gujarat, one of its two manufacturing locations, at a cost of 1.1 billion rupees. The company, which has 114 billion rupees of orders in hand with deliveries stretching into 2011, borrowed 6.5 billion rupees in February to fund expansion, Datar said.
A plan announced in April to raise $200 million selling shares to large investors was scrapped soon after because of the falling stock market, Datar said. The Bombay Stock Exchange’s Sensitive Index has fallen 52 percent this year. ABG had borrowed 6.5 billion rupees in February this year.
“This is not the right time to sell shares,” he said. Datar said. “We have no immediate requirement of funds.”
A 77 percent decline in the price of crude oil from a record $147.27 a barrel on July 11 has made it hard for oil companies to push expansion plans. Devon Energy Corp., the biggest U.S. independent oil and gas producer, Chevron Corp., the second- largest U.S. oil producer, and ConocoPhillips, the third-largest U.S. oil company, have deferred spending plans until January.
“We expect sense to prevail in the economy in the next three years,” Datar said. “There are still orders for both oil and gas. Companies like ONGC can’t do anything else,” he said, referring to Oil & Natural Gas.
The company may face cancellation of orders worth $49 million from Norway-based seismic data acquisition company Scan Geophysical, which failed to sign a sale and leaseback deal for the three vessels.