Aban Offshore Ltd Management Discussions

Global economy

Overview: Global economic growth declined from 3.5% in 2022 to an estimated 3.1% in 2023. A disproportionate share of global growth in 2023-24 is expected to come from Asia, despite the weaker-than- expected recovery in China, sustained weakness in USA, higher energy costs in Europe, weak global consumer sentiment on account of the Ukraine-Russia war and the Red Sea crisis resulting in higher logistics costs. A tightening monetary policy translated into increased policy rates and interest rates for new loans.

Growth in advanced economies is expected to slow from 2.6 percent in 2022 to 1.5 percent in 2023 and 1.4 percent in 2024 as policy tightening takes effect. Emerging market and developing economies are projected to report a modest growth decline from 4.1 percent in 2022 to 4.0 percent in 2023 and 2024. Global inflation is expected to decline steadily from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024, due to a tighter monetary policy aided by relatively lower international commodity prices. Core inflation decline is expected to be more gradual; inflation is not expected to return to target until 2025 in most cases. The US Federal Reserve approved a much- anticipated interest rate hike that took the benchmark borrowing costs to their highest in more than 22 years.

Global trade in goods was expected to have declined nearly USD 2 trillion in 2023; trade in services was expected to have expanded USD 500 billion. The cost of Brent crude oil averaged USD 83 per barrel in 2023, down from USD101per barrel in 2022, with crude oil from Russia finding destinations outside the European Union and global crude oil demand falling short of expectations.

Global equity markets ended 2023 on a high note, with major global equity benchmarks delivering double-digit returns. This outperformance was led by a decline in global inflation, slide in the dollar index, declining crude and higher expectations of rate cuts by the US Fed and other Central banks.

Regional growth(%)	2023	2022
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

Performance of major economies, 2023

United States: Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022 China: GDP growth was 5.2% in 2023 compared to 3% in 2022 United Kingdom: GDP grew by 0.4% in 2023 compared to 4.3% in 2022 Japan: GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022 Germany: GDP contracted by 0.3% in 2023 compared to 1.8% in 2022

(Source: PWC report, EY report, IMF data, OECD data, Livemint)

Outlook

Asia is expected to continue to account for the bulk of global growth in FY 2024-25. Inflation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy has demonstrated resilience amid high inflation and monetary tightening, growth around previous levels for the next two years. (Source: World Bank)

Indian economy

Overview: The Indian economy was estimated to grow 7.8% in the FY 2023-24 fiscal against 7.2% in FY 2022-23 mainly on account of the improved performance in the mining and quarrying, manufacturing and certain segments of the services sector. India retained its position as the fifth largest economy. The Indian rupee displayed relative resilience compared to the previous year; the rupee opened at Rs. 82.66 against the US dollar on the first trading day of 2023 and on 27 December was Rs. 83.35 versus the greenback, a depreciation of only 0.8%.

In the 11 months of FY 2023-24, the CPI inflation averaged 5.4 percent with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5 percent, a sharp decline from 6.2 percent in FY 23. The softening of global commodity prices led to a moderation in core inflation.

The nations foreign exchange reserves achieved a historic milestone, reaching USD 645.6 billion. The credit quality of Indian companies remained strong between October 2023 and March 2024 following deleveraged Balance Sheets, sustained domestic demand and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in H2 FY24. UPI transactions in India posted a record 56% rise in volume and 43% rise in value in FY24.

Growth of the Indian economy

	FY 21	FY 22	FY23	FY24
Real GDP growth (%)	6.6	8.7	7.2	7.8

Growth of the Indian economy quarter by quarter, FY 2023-24

	Q1FY24	Q2FY24	Q3FY24	Q4FY24E
Real GDP growth (%)	8.2	8.1	8.4	8.2

E: Estimated

(Source: Budget FY24; Economy Projections, RBI projections, Deccan Herald)

Indias monsoon in 2023 hit a five-year low, with August marking the driest month in a century. Despite receiving only 94% of its long-term average rainfall from June to September, wheat production estimatedly recorded 114 million tonnes in FY 202324 crop year due to higher coverage. Rice production was anticipated to decrease to reach 106 million metric tons (MMT) in comparison to 132 million metric tonnes in the previous year. Total kharif pulses produced in FY 2023-24 stood at an estimated 71.18 lakh metric tonnes, which is lower than FY 2022-23 due to climatic conditions.

As per the first advance estimates of national income released by the National Statistical Office (NSO), the manufacturing sector output is projected to have grown 6.5% in FY 2023-24 compared to 1.3% in FY 2022-23. The Indian mining sector experienced an estimated growth of 8.1% in FY 2023-24 compared to 4.1% in FY 2022-23. Financial services, real estate and professional services grew a projected 8.9% in FY 2023-24 compared to 7.1% in FY 2022-23.

Real GDP or GDP at constant prices increased from to Rs. 160.71 lakh crore in FY 2022-23 (provisional GDP estimate released on May 31, 2023) to an estimated Rs. 173.82 lakh crore in FY 2023-24. Growth in real GDP during FY 2023-24 stood at 8.2% compared to 7.2% in FY 2022-23. Nominal GDP or GDP at current prices was estimated at Rs. 295.36 lakh crore in FY 2023-24 as compared to the provisional FY 2022-23 GDP estimate of Rs. 269.50 lakh crore. The gross non-performing asset ratio for scheduled commercial banks improved from 4.1% as of March 2023 to 2.8% as of March 2024.

Indias exports of goods and services were expected touch USD 900 billion in FY 202324 compared to USD 770 billion in the previous year despite global headwinds. Merchandise exports were expected to expand between USD 495 billion and USD 500 billion, while services exports were expected to touch USD 400 billion during the year. Indias net direct tax collection increased 17.7% to Rs. 19.58 lakh crore in FY24. Gross GST collection amounted to Rs. 20.2 lakh crore, marking an 11.7% increase, with an average monthly collection of Rs. 1,68,000 crore, surpassing the previous years average of Rs. 1,50,000 crore.

The agriculture sector was expected to see a growth of 1.8% in FY 2023-24, lower than the 4% expansion recorded in FY 2022-23. Trade, hotel, transport, communication and services related to broadcasting segment are estimated to grow at 6.3% in FY 2023-24, a contraction from 14% in FY 2022-23. The Indian automobile segment was expected to close FY 2023-24 with a growth of 6-9%, despite global supply chain disruptions and rising ownership costs.

The construction sector was expected to grow 10.7% year-on-year from 10% in FY 2023-23. Public administration, defence and other services were estimated to grow by 7.7% in FY 2023-24 compared to 7.2% in FY 2022-23. The growth in gross value added (GVA) at basic prices was pegged at 6.9%, down from 7% in FY 2022-23.

India reached a pivotal phase in its S-curve, characterised by acceleration in urbanization, industrialization, household incomes and energy consumption. India emerged as the fifth largest economy with a GDP of USD 3.6 trillion and nominal per capita income of Rs. 123,945 in FY 2023-24.

Indias Nifty 50 index grew 30 percent in FY 2023-24 and Indias stock market emerged as the worlds fourth largest with a market capitalization of USD 4 trillion. Foreign investment in Indian government bonds jumped in the last three months of 2023. India was ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Indias unemployment declined to a low of 3.2% in 2023 from 6.1% in 2018.

Outlook

India withstood global headwinds in 2023 and is likely to remain the worlds fastest- growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass USD 4 trillion in FY 2024-25.

Union Budget FY 2024-25

The Interim Union Budget FY 2024-25 retained its focus on capital expenditure spending, comprising investments in infrastructure, solar energy, tourism, medical ecosystem and technology. In FY 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. Of these, the Ministry of Defence reported the highest allocation at Rs. 6,21,541 crore, accounting for 13% of the total budgeted expenditure of the central government. Other ministries with high allocation included Road transport and highways (5.8%), Railways (5.4%) and Consumer Affairs, food and public distribution (4.5%).

(Source: Times News Network, Economic Times, Business Standard, Times of India)

Global crude oil sector overview

The crude oil market size has grown strongly in recent years. It is expected to grow from USD 2829.69 billion in 2023 to USD 2,998.39 billion in 2024 at a CAGR of 6.0%. The crude oil market size is expected to see strong growth in the next few years. It is expected to grow to USD 3,655.81 billion in 2028 at a CAGR of 5.1% (2024-2028). The global crude oil demand was 101.89 million barrels per day in 2023.

Asia-Pacific (APAC), with 1.9 million barrels a day(b/d), is expected to account for more than 63% of the total growth in 2024. The Asia Pacific base oil market size is estimated at 16.88 million tons in 2024 and is expected to reach 21.10 million tons by 2029, growing at a CAGR of4.56% during the forecast period 2024-2029. The United States production including condensate, averaged 12.9 million barrels per day b/d in 2023, breaking the previous us and global record of 12.3 million b/d, set in 2019. The average monthly US crude oil production established a monthly record of more than 13.3 b/d. Organization of Petroleum Exporting countries (OPEC)s oil demand is estimated to rise by 2.25 million barrels per day (b/d) in 2024 and by 1.85 million b/d in 2025. OPEC expects a global economic growth of 2.8% in 2024, driven by the expectation of a continued easing in general inflation throughout the year.

Global crude market growth is continuously increasing due to factors like the booming transportation industry, the growth in the export and import of crude oil, rising demand for petroleum products, growing demand for fertilizers and petrochemicals in the agriculture sector, increased number of active oil regions across several regions. Crude oil used as bunker fuel for marine transport and jet fuel for aviation are two further transportation-related applications. The rising need for crude oil is inevitable as the demand for petrochemical goods rises.

Crude oil production in the last few years

Year	Production
	(million barrels / day)
2020	91
2021	97.48
2022	100.61
2023	101.9
2024	102

(Source: The Business Research Company, Statista, Forbes, Mint, Small caps, Mordor Intelligence, Maximize markets research)

Outlook

The crude oil market has the potential tc grow by 4781.60 million barrels during 2021-2025. The global oil demand coulc grow by 1.2 million barrels a day in 2025 compared with 1.4 million barrels in 2024 OPECs demand could rise by 1.8 millior b/d in 2025. In 2025, Asia is expected to account for 54.8% of the total share. China and Indias oil imports are projected to reach 22.3% and 10.0%, respectively, by the same year. (Source: Technavio, Sky quest technology, Busines: Standard, S and P global)

Indian crude oil sector overview

Production in the crude petroleum market is projected to amount to 40.5 billion kg in 2024, with an expected annual growth rate of 7.84% (CAGR 2024-2028).

The volume of crude oil production in India in 2023 amounted to about 29.2 million tons

Compared to the previous fiscal year, there was a slight decrease in crude oil production in the country. Several factors are propelling the growth of crude oil production. Among the eight core industries, the Indian oil and gas sector holds a significant position. India, the worlds third-biggest oil importer, and consumer, has traditionally relied on Middle Eastern producers for meeting the bulk of its oil needs and rarely made purchases from Russia in the past due to high transportation costs. The countrys oil demand is expected to increase by 40% to 6.7 mb/day by 2030 and further to 8.3 mb/day by 2050.

Indias net oil import bill is expected to widen to USD 101-104 billion in FY25 from USD 96.1 billion in 2024.The net import bill for crude oil imports is USD 11.4 billion. Indias refining capacity is projected to increase by 56 million tons by 2028.

(Source:livemint.com, indiatimes.com, statista.com,economictimes.com, monetcontrol.com)

Outlook

In FY 2023-24, energy demand has increased by 12.7% to 2,43,271 MW from 2,15,888 MW during the previous year (2022-23). In 2024 Indias oil demand has been stood at 5.59 barrels per day (b/d), up from 5.37 million b/d in 2023, resulting in a growth of 4.1 percent. Policy, technology, and consumer preferences collectively shape the worlds energy usage, with each driver influencing the others. Indias oil consumption is forecasted to increase by 7.2 million barrels per day in 2030.

(Source: businessstandard.com, theindianexpress.com)

Global drilling and offshore rigs industry

The offshore drilling rigs market size will grow from USD 86.84 billion in 2023 to USD 93.55 billion in 2024 at a compound annual growth rate (CAGR) of 7.7%.

The growth can be attributed to oil and gas demand, global energy trends, and the regulatory environment.

An increase in the number of exploratory wells is expected to propel the growth of the offshore drilling rigs market. Exploratory wells are deep test holes dug by oil and gas exploration companies both onshore and offshore to uncover proven reserves of recoverable gas and oil. (Source: mordorintelligence. com, thebusinessresearchcompany.com)

Global jack-up rig market

At the end of the first quarter of 2024, utilization for floating rigs and jack-ups was high. The jack-up rig market is anticipated to experience growth, with an expected size reaching USD 4.1 billion by 2030. This expansion is projected at a compound annual growth rate (CAGR) of 5.02% from 2023 to 2030. The high consumption of oil and gas energy is notably driving the jackup rig market growth, although factors such as environmental concerns associated with oil and gas exploration and production activities may impede market growth.

(Source: skyquestt.com, technavio.com)

Growth drivers

Rising investments: The global upstream oil and sector industry, is projected to generate over USD 800 billion in 2024. The rising investments in the upstream oil and gas sector are notably driving market growth. However, factors such as uncertainty associated with low crude oil prices may impede market growth.

Mobile offshore drilling units:

Technological advances in mobile offshore drilling units (MODUs) are the primary trend in the market. MODUs are structures or vessels that are used in offshore drilling operations for the E&P of subsea oil and gas resources. These include drill ships, jack-up rigs, and semi-submersible rigs, which can be moved in marine waters from one well to the other for oil and gas drilling operations.

Leveraging concentrated ownership:

In the jack-up market, ownership is heavily consolidated among international drilling contractors.

This concentration enables higher day rates, backed by robust industry discipline. ,

With market activity on the rise, international Jh; contractors can fulfil demand at more favourable day rates compared to local suppliers. Simultaneously,

international contractors stand to gain from the sale of rigs to local counterparts.

Addressing the fragmentation challenge: The jack-up market has long struggled with fragmented ownership and a lack of pricing discipline. jack up rigs market is highly competitive and somewhat fragmented. To maintain a competitive edge, the major industry participants are continually implementing various growth strategies. Innovations, mergers, and acquisitions, collaborations and partnerships are adopted by these players to thrive in the competitive market.

(Source: technavio.com, skyquestt.com)

SWOT analysis

• Established technology and expertise in offshore drilling operations.

• Growing demand for oil and gas exploration and production activities.

• High utilization rates for premium jack-up rigs, indicating strong market demand.

• Increasing focus on safety standards and risk management in offshore operations.

• Vulnerability to fluctuations in oil prices and market demand.

• High capital investment is required for rig construction and maintenance.

• Dependence on regulatory approvals and environmental considerations for offshore projects.

• Competition from alternative energy sources impacting long-term demand projections.

• Expansion into emerging markets with untapped offshore reserves.

• Adoption of advanced technologies to enhance operational efficiency and reduce costs.

• Diversification into renewable energy sectors such as offshore wind farms.

• Strategic partnerships and alliances to access new regions and markets.

• Volatility in oil prices affecting exploration and production budgets.

• Regulatory changes impacting offshore drilling activities.

• Geopolitical tensions and instability in key oil-producing regions.

Financial performance

The Company generated revenues worth Rs. 3996.65 million in FY 2023-24 compared to the previous years revenue of Rs. 3967.27 million. At the close of FY 202324, the Companys rigs were operating under long-term contracts. The Company reported a net loss of Rs. 15,751.48 million in FY 2023-24 compared with a net loss of Rs. 27,842.98 million in FY 2022-23.

Ratio	FY 2023-24		FY 2022-23
	Standalone	Consolidated	Standalone	Consolidated
Debtors turnover	0.48	1.72	0.25	1.07
Inventory turnover	0.01	0.45	0.05	0.57
Interest coverage	(3.53)	(0.23)	(2.04)	(0.16)
Current Ratio	0.22	0.02	0.27	0.03
Debt to equity ratio	-ve	-ve	-ve	-ve
Operating profit margin %	(250.04)	(62.96)	(185.49)	(45.11)
Net profit margin %	(313.77)	(394.12)	(148.16)	(701.82)
Return on net worth	N/A	N/A	N/A	N/A

Reasons for the difference

Debtors Turnover, Consolidated

Debtors Turnover increased by approximately 1.01 times and average debtors decreased by approximately Rs. 1397 million during the FY 2023-24 due to a write-off of trade receivables from the Middle East region in FY 2023-24.

Interest Coverage, Standalone Negative EBIT has increased 1.60 times due to write off of trade receivables from Middle east region in the FY 2023-24.

Interest Coverage, Consolidated

Interest expense decreased by approximately Rs. 175 million and negative EBIT increased by 1.4 times due to a write- off of receivables from Middle East region in FY 2023-24, followed by amortization of contract assets.

Current Ratio, Standalone

Current Assets decreased by approximately Rs. 2078.53 million due to a write-off of trade receivables from the Middle East region in the FY 2023-24.

Current Ratio, consolidated

Current assets decreased approximately by Rs. 2580 million due to write-off of trade receivables from Middle East region in the FY 2023-24, reduction in Cash and Bank balances and reduction in Loans and Advances.

Operating Profit Margin, Standalone

Negative EBIT increased in the FY 2023-24 by approximately Rs. 845.73 million due to write-off of trade receivables from the Middle East region in FY 2023-24.

Operating Profit Margin consolidated

Negative EBIT increased by 1.4 times due to write-off of trade receivables from the Middle East region in FY 2023-24 and amortization of contract assets.

Net Profit Margin, Standalone

Net loss margin increased 106% approximately by Rs. 1672.67 million due to write-off of trade receivables from the Middle East region.

Net Profit Margin, Consolidated

Net loss margin Increased by 1.2 times approximately, mainly due to write off of trade receivables from Middle east region in FY 2023-24 followed by amortization of contract assets.

Inventory Turnover, Consolidated

Average inventory decreased by Rs. 421 million due to inventory write down amounting to Rs. 81.94 million in FY 22-23 and Rs. 670.19 million in FY 2122. Further consumption of spares on rigs of the wholly owned foreign subsidiary reduced in FY 23-24 as compared to FY 2223 by approximately Rs. 277 million. This reduction is mainly due a greater number of rigs operating in the first quarter of FY 22-23.

Inventory Turnover, Standalone

Average inventory decreased by Rs.144.63 million approximately mainly due to a write down of inventory of Rs. 81.94 million in FY 2022-23 and Rs. 92.32 million in FY 2021-22 and reduction in consumption in FY 2023-24 by approximately Rs. 26 million.

Risk management

Economic risk: Fluctuations in prices could impact the profitability of the business.

Mitigation: The Company shielded its assets from short-term fluctuations by securing a majority of medium and longterm contracts.

Regulatory risk: Several compliance issues could impact operations.

Mitigation: The Company has devised and put into practice rigorous operational and safety protocols, adhering to quality, health, safety, and environment standards.

Competition risk: Heightened competition could affect the Companys long-term outlook.

Mitigation: By leveraging depreciated assets and cultivating enduring partnerships with major international firms, the Company bolstered its competitiveness.

Geographic risk: Excessive emphasis on a specific region could impede business performance.

Mitigation:The Companys offshore

services span both India, reducing the risk of over-dependence on any single region.

Technological risk: Employing obsolete technology could prompt organizations to migrate to more competitive firms.

Mitigation: The Company consistently pursued technological advancements to align with international standards.

Manpower risk: Increased attrition of personnel could impact the Companys productivity.

Mitigation: Implement comprehensive retention strategies focusing on career development, recognition, and work-life balance to mitigate personnel attrition and sustain productivity.

Asset utilization risk: Fluctuations in global crude oil prices may affect -gg the firms performance.

Mitigation:The Company secured enhanced revenue predictability by allocating assets to long-term contracts.

Liquidity risk: Elevated levels of debt could lead to a liquidity crunch.

Mitigation: The Company participated in discussions to resolve outstanding payments with financial institutions and stakeholders.

Human resources

The Company regards its dedicated and enthusiastic workforce as its most valuable asset. It provides competitive compensation, a supportive work environment, and well-structured incentive and recognition initiatives to acknowledge employee achievements. Upholding the goal of enabling every employee to reach their full potential at work, the Company encourages going beyond expectations, engaging in voluntary learning experiences, and proposing innovative workplace enhancements. As of March 31, 2024, the Company employed 429 employees in the fiscal year 2023-24,

Internal control systems and their adequacy

The corporate governance code guides the design and implementation of the organizations internal control and risk management system, serving as its cornerstone. Integral to both the Companys and the Groups overall organizational framework, it involves various employees collaborating to fulfil their respective roles. Under the guidance of the Board of Directors, the audit committee receives reports from the internal audit department. Regular examinations of the Companys assets are conducted, with subsequent reports presented to the Audit Committee. Alongside supervising and supporting other committees, the Audit Committee and Board of Directors offer strategic guidance and oversight to the Executive Directors and senior management.

Cautionary statement

This statement made in this section describes the Companys objectives, projections, expectations, and estimations which may be forwardlooking statements within the meaning of applicable securities laws and regulations. Forwardlooking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. The actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify, or revise any forward-looking statements on the basis of any subsequent development.