Aban Offshore Q2 FY26: Mounting Losses and Deteriorating Financials Signal Deep Distress

The stock has collapsed 45.07% over the past year and currently trades at ₹35.78, perilously close to its 52-week low of ₹35.80. With negative book value of ₹4,352.27 per share, virtually non-existent institutional support (0.07%), and a "Strong Sell" rating with a dismal score of 3 out of 100, Aban Offshore exemplifies a company in terminal decline.

The quarter's results paint a grim picture of a company unable to escape the vicious cycle of declining revenues, unsustainable debt servicing costs, and operational inefficiencies. Net sales plummeted to ₹104.77 crores in Q2 FY26, marking the lowest quarterly revenue in at least seven quarters and representing a 9.05% year-on-year decline. Quarter-on-quarter, sales dropped 8.43% from ₹114.42 crores in Q1 FY26, signalling accelerating weakness in the company's core offshore drilling operations.

Financial Performance: A Catastrophic Deterioration

The financial performance in Q2 FY26 represents an alarming deterioration across virtually every metric. Operating profit before depreciation, interest, and tax (excluding other income) collapsed to ₹18.23 crores—the lowest in seven quarters—down from ₹55.45 crores in the previous quarter and ₹42.20 crores in the year-ago period. This 67.12% quarter-on-quarter plunge in operating profit reflects severe operational distress beyond just revenue weakness.

Operating margins (excluding other income) compressed dramatically to 17.40% in Q2 FY26 from 48.46% in Q1 FY26, marking the weakest margin performance in recent history. The margin collapse suggests not just volume issues but fundamental problems with cost structure and operational efficiency. Employee costs remained relatively stable at ₹17.18 crores, but with revenues shrinking, the fixed cost burden became increasingly unsustainable.

The interest burden continues to suffocate any possibility of profitability. Interest expenses stood at ₹288.94 crores in Q2 FY26, representing 275.88% of net sales—a toxic ratio that renders the business model fundamentally unviable. With operating profit of just ₹18.23 crores unable to cover even a fraction of the ₹288.94 crores interest obligation, the company's interest coverage ratio stands at a catastrophic 0.06 times, the lowest level recorded in recent quarters.

After accounting for depreciation of ₹25.22 crores and the crushing interest burden, the company reported a profit before tax of negative ₹293.07 crores. Even after a nominal tax credit of ₹14.37 crores (reflecting the company's loss-making status), net losses ballooned to ₹307.44 crores. The PAT margin of negative 293.44% underscores the severity of the financial distress—for every rupee of sales, the company loses nearly three rupees.

Balance Sheet Crisis: Negative Net Worth and Mounting Liabilities

The balance sheet tells an even more troubling story of a company with negative shareholder value and overwhelming liabilities. As of March 2025, Aban Offshore reported shareholder funds of negative ₹25,402.00 crores, driven by accumulated reserves and surplus of negative ₹25,413.67 crores against a share capital of just ₹11.67 crores. This translates to a book value per share of negative ₹4,352.27—meaning the company's liabilities exceed its assets by a staggering margin.

Current liabilities stood at ₹26,934.47 crores as of March 2025, including trade payables of ₹174.82 crores and other current liabilities of ₹11,062.29 crores. Against this, current assets were a mere ₹568.29 crores, resulting in a severe working capital deficit. The company's fixed assets have been steadily declining, from ₹3,191.11 crores in March 2021 to ₹650.90 crores in March 2025, reflecting asset sales, impairments, and depreciation without corresponding reinvestment.

Whilst the company technically shows zero long-term debt on the balance sheet, the classification of debt as current liabilities (given covenant breaches or restructuring) doesn't change the fundamental reality: Aban Offshore is drowning in debt obligations it cannot service. The average debt-to-EBITDA ratio of 26.58 times over recent years is astronomically high, indicating the company would need more than 26 years of current EBITDA to pay off its debt—an impossibility given ongoing losses.

Industry Context: Structural Challenges in Offshore Drilling

Aban Offshore operates in India's offshore drilling sector, providing drilling and oilfield services for hydrocarbon exploration and production. The company was established in 1986 by M.A. Abraham and was once India's largest private sector offshore drilling contractor. However, the global offshore drilling industry has faced severe headwinds over the past decade, with oil price volatility, oversupply of rigs, and increasing competition from international players creating a challenging operating environment.

The company's performance must be viewed against the backdrop of India's oil sector, which has shown resilience with the broader Oil sector delivering 13.91% returns over the past year. However, Aban Offshore has massively underperformed, posting negative 45.07% returns over the same period—a staggering 58.98 percentage point underperformance versus its sector. This divergence highlights company-specific issues rather than broader industry weakness.

The offshore drilling market requires significant capital investment, long contract cycles, and the ability to maintain and upgrade sophisticated equipment. Aban Offshore's declining fixed asset base (from ₹3,191.11 crores in FY21 to ₹650.90 crores in FY25) suggests an inability to maintain or replace ageing rigs, which in turn limits the company's ability to compete for new contracts. The steady revenue decline from ₹1,069.00 crores in FY21 to ₹475.00 crores in FY25 reflects this loss of competitive positioning.

Peer Comparison: Worst-in-Class Performance

A comparison with oil sector peers reveals Aban Offshore's position as an extreme outlier in terms of financial distress. Whilst most peers maintain positive return on equity and manageable debt levels, Aban Offshore stands out with zero return on equity (reflecting negative book value), negative price-to-book ratio of -0.01x, and a debt-to-equity ratio that, whilst appearing favourable at -0.61 (due to negative equity), actually masks the severity of the debt burden relative to the company's ability to generate earnings.

Unlike peers such as Ganesh Benzoplast (ROE of 13.32%) or Gandhar Oil Refinery (ROE of 9.23%), Aban Offshore generates zero return on equity due to its negative net worth. The company's market capitalisation of ₹215.00 crores ranks it at the bottom of its peer group, reflecting the market's assessment that the equity has minimal residual value given the overwhelming debt burden and ongoing losses.

Valuation Analysis: Equity Value Destruction

Traditional valuation metrics are largely meaningless for Aban Offshore given its loss-making status and negative book value. The P/E ratio is not applicable as the company is loss-making. The price-to-book ratio of -0.01x reflects the market pricing the stock at a tiny fraction of its (negative) book value, essentially valuing the equity as a deeply out-of-the-money call option on a potential restructuring or turnaround.

The EV-to-EBITDA multiple of 88.49x and EV-to-EBIT of 231.32x appear astronomically high, but these metrics are distorted by the minimal EBITDA and EBIT generation relative to the enterprise value. More meaningfully, the EV-to-sales ratio of 34.05x indicates the market is valuing the company at 34 times its annual revenue—a reflection of the debt burden rather than optimism about the business.

The company's overall valuation grade of "RISKY" is an understatement given the fundamental insolvency situation. With a current market price of ₹35.78 trading just above the 52-week low of ₹35.80, and having declined 50.52% from its 52-week high of ₹72.31, the stock reflects extreme distress pricing. The last dividend payment was in September 2015 at ₹3.60 per share—a distant memory for shareholders who have since witnessed continuous value destruction.

Shareholding Pattern: Institutional Exodus Complete

The shareholding pattern reveals a company abandoned by institutional investors, with promoter holding at 19.37% (unchanged over recent quarters) and virtually no institutional participation. Foreign institutional investor (FII) holdings have dwindled to 0.00% in September 2025 from 0.12% in March 2025, representing a complete exit. Mutual fund and insurance company holdings remain at 0.00%, indicating no appetite from domestic institutional investors.

Other domestic institutional investor (DII) holdings collapsed from 1.71% in December 2024 to just 0.06% in September 2025, marking a sustained exit by the last remaining institutional holders. Non-institutional holdings (primarily retail investors) have increased marginally to 53.94%, suggesting the shareholder base is now dominated by retail investors potentially trapped in the stock or speculating on restructuring possibilities.

Total institutional holding of just 0.07% (combining FII, MF, Insurance, and Other DII) ranks amongst the lowest in India's listed universe and reflects the investment community's complete loss of confidence in the company's prospects. The promoter group, led by India Offshore Inc (14.27%) and Aban Investments Private Limited (9.69%), maintains its stake but has been unable to arrest the company's decline.

Stock Performance: Relentless Downtrend

Aban Offshore's stock performance has been catastrophic across all timeframes, with the shares in a sustained bearish trend since September 2025. The stock currently trades at ₹35.78, down 3.01% on the day and sitting precariously close to its 52-week low of ₹35.80. The one-week return of negative 7.62% and one-month return of negative 11.33% indicate accelerating selling pressure following the disastrous Q2 results.

Year-to-date, the stock has plummeted 43.53% whilst the Sensex gained 6.64%—a negative alpha of 50.17 percentage points. The one-year performance of negative 45.07% versus the Sensex's 4.82% gain translates to a 49.89 percentage point underperformance. Even the five-year return of 54.56%, whilst positive in absolute terms, massively underperformed the Sensex's 91.14% gain by 36.58 percentage points.

Technical indicators uniformly signal distress. The stock trades below all key moving averages—5-day (₹38.25), 20-day (₹40.13), 50-day (₹42.33), 100-day (₹46.23), and 200-day (₹44.26)—indicating sustained selling pressure across all timeframes. MACD, RSI, Bollinger Bands, and KST all flash bearish signals on both weekly and monthly charts. The Dow Theory classification of "Mildly Bearish" appears generous given the fundamental distress.

With a beta of 1.50, Aban Offshore exhibits 50% higher volatility than the broader market, amplifying losses during downturns. The risk-adjusted return of negative 1.05 over the past year, combined with volatility of 43.00%, places the stock firmly in the "HIGH RISK LOW RETURN" category—the worst possible quadrant for investors. The Sharpe ratio is deeply negative, indicating investors are being penalised rather than rewarded for the substantial risk they bear.

Investment Thesis: A Company Beyond Rescue

Aban Offshore's investment thesis—or lack thereof—centres on a company in terminal financial distress with no visible path to recovery. The Mojo score of 3 out of 100 with a "STRONG SELL" rating reflects the confluence of negative factors: bearish technicals, negative financial trend, below-average quality, and risky valuation. Every parameter points to a company that has destroyed shareholder value and continues to do so.

The quality assessment of "BELOW AVERAGE" understates the severity of the situation. With five-year sales growth of negative 16.45%, average EBIT to interest coverage of 0.0 times, average debt to EBITDA of 26.58 times, and average return on equity of 0.0%, the company fails on every quality metric. The 19.37% promoter pledge adds another layer of concern, suggesting even the promoters may be financially stressed.

Key Strengths and Risk Factors

Outlook: What to Watch (Or Avoid)

For the few investors still holding Aban Offshore shares, the outlook is bleak with limited catalysts for improvement and numerous red flags signalling further deterioration. Any monitoring should focus on restructuring announcements, debt resolution plans, or asset sale possibilities rather than operational improvements, as the current business model is fundamentally unviable.