Great Offshore is poised for a strong growth in H2 FY08, as its important assets get deployed at higher rates
GREAT OFFSHORE, the Vijay Sheth-led company, was demerged from GE Shipping last year and listed on the bourses in December ’06. The company, which operates in the offshore support industry, owns the second largest fleet of vessels next only to ONGC. Great Offshore owns a fleet of 40 vessels. The company acquired three vessels during the first half of FY07. It has ordered one drilling rig and one multi-support vehicle (MSV), which will be incorporated in its fleet by FY10. The company has won a five-year contract from ONGC worth Rs 1,000 crore even before the arrival of its new drilling rig. In terms of charter rates, this translates into a whopping $145,000 per day. However, the heavy expenditure incurred over the past three quarters on dry-docking and upgradation of some of its vessels is a matter of concern. This has not only increased its expenditure, but also curtailed revenues.
But, the fact that the company is through with the dry-docking and all its main assets have become operational, should enable it to register strong topline and bottomline growth over the next few quarters.
Recent Developments:
Recently, ONGC contracted Great Offshore’s Badrinath rig at a newly negotiated rate of $80,000 per day, which is substantially higher compared to the earlier charter rate of $34,000 per day. Also, the MSV which was being upgraded has been commissioned at $58,000 per day. The Kedarnath rig has also resumed its contract with ONGC at the old rate of $46,000 per day. Over the past six months, the company has forayed into the related field of marine construction. It currently holds an unexecuted order book of Rs 55 crore. Going forward, this business can contribute substantially to its topline and bottomline growth. Great Offshore is expected to record a turnover of around Rs 375 crore during the second half of FY08 with stronger operating margins than in the first half of FY08 due to lower dry-dock expenses. It recently issued preference shares and FCCBs to ready a war chest of Rs 320 crore. The company, which enjoys the flexibility to raise further funds through leveraging, is actively looking for acquisition of assets to drive its future growth.
RISKS: A majority of its vessels are considerably old. Ageing vessels tend to command lower charter rates and typically have greater operating costs. Another factor that could impact the company is that the offshore support industry is currently at its peak of the economic cycle and, therefore, it is much more expensive to acquire new assets. It has also spent around $15 million on upgradation of its MSV and, therefore, its profitability for the September FY08 quarter (Q2) may come under pressure if this expenditure is not capitalized and instead written off.
FINANCIALS: For FY07, it registered a 50% spurt in its bottomline to Rs 145.18 crore, while the total income was up 51% at Rs 590.07 crore. During Q1 FY08, the company’s operational performance was lacklustre, but was boosted by forex gains on foreign currency loans. During Q1, it lost 25-day revenue on the Kedarnath rig, while the other rig lost a couple of months of revenues due to dry-docking. Similarly, the MSV remained out of business due to the ongoing upgradation work. This scenario has now changed dramatically.
VALUATIONS: Considering the recent changes in the scenario and the high growth potential the scrip appears attractive. Based on an EPS for the trailing 12 months calculated on fully diluted equity, the scrip is currently trading at a P/E of 20.9. At an estimated EPS of Rs 49.2 for FY08, the forward P/E works out to 16.5, which is substantially low for a highgrowth company.
GREAT OFFSHORE, the Vijay Sheth-led company, was demerged from GE Shipping last year and listed on the bourses in December ’06. The company, which operates in the offshore support industry, owns the second largest fleet of vessels next only to ONGC. Great Offshore owns a fleet of 40 vessels. The company acquired three vessels during the first half of FY07. It has ordered one drilling rig and one multi-support vehicle (MSV), which will be incorporated in its fleet by FY10. The company has won a five-year contract from ONGC worth Rs 1,000 crore even before the arrival of its new drilling rig. In terms of charter rates, this translates into a whopping $145,000 per day. However, the heavy expenditure incurred over the past three quarters on dry-docking and upgradation of some of its vessels is a matter of concern. This has not only increased its expenditure, but also curtailed revenues.
But, the fact that the company is through with the dry-docking and all its main assets have become operational, should enable it to register strong topline and bottomline growth over the next few quarters.
Recent Developments:
Recently, ONGC contracted Great Offshore’s Badrinath rig at a newly negotiated rate of $80,000 per day, which is substantially higher compared to the earlier charter rate of $34,000 per day. Also, the MSV which was being upgraded has been commissioned at $58,000 per day. The Kedarnath rig has also resumed its contract with ONGC at the old rate of $46,000 per day. Over the past six months, the company has forayed into the related field of marine construction. It currently holds an unexecuted order book of Rs 55 crore. Going forward, this business can contribute substantially to its topline and bottomline growth. Great Offshore is expected to record a turnover of around Rs 375 crore during the second half of FY08 with stronger operating margins than in the first half of FY08 due to lower dry-dock expenses. It recently issued preference shares and FCCBs to ready a war chest of Rs 320 crore. The company, which enjoys the flexibility to raise further funds through leveraging, is actively looking for acquisition of assets to drive its future growth.
RISKS: A majority of its vessels are considerably old. Ageing vessels tend to command lower charter rates and typically have greater operating costs. Another factor that could impact the company is that the offshore support industry is currently at its peak of the economic cycle and, therefore, it is much more expensive to acquire new assets. It has also spent around $15 million on upgradation of its MSV and, therefore, its profitability for the September FY08 quarter (Q2) may come under pressure if this expenditure is not capitalized and instead written off.
FINANCIALS: For FY07, it registered a 50% spurt in its bottomline to Rs 145.18 crore, while the total income was up 51% at Rs 590.07 crore. During Q1 FY08, the company’s operational performance was lacklustre, but was boosted by forex gains on foreign currency loans. During Q1, it lost 25-day revenue on the Kedarnath rig, while the other rig lost a couple of months of revenues due to dry-docking. Similarly, the MSV remained out of business due to the ongoing upgradation work. This scenario has now changed dramatically.
VALUATIONS: Considering the recent changes in the scenario and the high growth potential the scrip appears attractive. Based on an EPS for the trailing 12 months calculated on fully diluted equity, the scrip is currently trading at a P/E of 20.9. At an estimated EPS of Rs 49.2 for FY08, the forward P/E works out to 16.5, which is substantially low for a highgrowth company.
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