Tuesday, September 29, 2009

Low equity capital cause Aban offshore price fluctuation


Mahesh Ji,
Please suggest me upon Aban offshore. I am holding 100 @ 1650 level.One of friend is suggesting it will go back to less than 1400 levels. Can I hold or exit? I can hold it for 6 months also.Thanks, Cinels.
1. Aban offshore is India largest oil drilling company in private sector.
2. Aban offshore is a 2 rupees face value share.
3. Aban offshore is a high debt company debt/equity ratio is 3.70 so this debt/equity ratio is very high this means company total debt is 3.7 time to his equity capital. This point is main negative factor of this company
4. Book value of aban offshore is 243.2 only so aban offshore current price is 6x of book value, which is very high valuation.
5. You may note one thing that year low of aban offshore is 224 below it book value and year high is 2506 ten time of his book value so what the reason of this price fluctuations?
6. I give you reason of this price fluctuation that total equity capital of aban offshore is very low only 7.6 million this means company have 3.80 million share of 2 rupees face value and 60 percent share hold by promoters so only 1.52 million share is available in open market (in ONGC after promoter holding 77 million share of ONGC available in open market).
7. As we discuss in point 5 that when a less quantity of share is available for a good company in open market than price will easily rise and down and cause huge fluctuation so current price of aban offshore is due to low equity capital and high demand.
8. I think your friend is right if movement in aban offshore is cool down than price down easily because current price is 6 times higher than book value of share.
9. However, not book your loss at once because this is a good company and due to his low equity capital price of this share is fluctuate in future also so you may hold your possition with reasonable stop loss and look a profitable exit.
10. In this sector (oil drilling and exploration) I like alpha geo (India) this company share have 10 rupees face value, book value 104.40 low equity only 5.1 million, 34.71 percent promoter holding, debt /equity ratio is 0.42, if market down I look a entry in alpha geo share @ 100-150 because I think this share may be coming aban offshore story.
THIS ANALYSIS IS MAHESH CHANDER KAUSHIK OPINION ONLY NOT A PROFESSIONAL ADVICE SO READ DISCLAIMER BEFORE TAKE ANY ACTION.
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