Great Offshore on high-growth course

Increasing Oil Prices, Charter Rates Will Help Co Grow 40%

THE Great Offshore scrip has been falling consistently and grossly underperforming the BSE Sensex due to the tepid financial performance in the last four quarters.
However, with over 90% of its assets deployed on medium- to longterm projects, the scrip is finding favour with institutional investors.
With oil prices inching up and oil companies renewing their exploration efforts, Great Offshore is likely to see a lot of investor activity.
Demerged from GE Shipping in 2006, Great Offshore was acquired by Bharati Shipyard in a tussle with ABG Shipyard that lasted over six months from mid-2009 to early 2010. The company today owns 47 marine assets — three drilling rigs, 28 offshore support vessels, 12 harbour tugs, three construction barges and a floating dry-dock vessel. All these assets are chartered out to oil companies for carrying out offshore exploration and production work.
The company is set to acquire two more vessels — one jack-up rig and one multi-support vessel — for $245 million by mid-2011.
Great Offshore’s results for the trailing four quarters have been lacklustre mainly due to dry-docking and refurbishment expenditure on its rigs Kedarnath and Amarnath. The profit during this period slipped 3.7% while the revenues were down 5.5% against the yearago period.
In spite of the weak financial numbers so far, the company seems to have caught the fancy of institutional investors. The shareholding of institutional investors, which stood at 6.5% at the end of December 2009, has grown steadily to 15.4% by the end of September 2010.
The company operates in a capitalintensive industry and has a debt-equityratioof2.2witharound8%average cost of debt. However, it enjoys strong operating cashflows, which will enable it to service its debts comfortably.
Starting December 2010, Kedarnath drilling rig has commenced work on a five-year ONGC contract worth $125 million. This contract alone is expected to add 10% to the company’s revenues on a full-year basis. While the Amarnath rig gets refurbished, the other rig Badrinath will undergo refurbishment in the first half of 2011. Thus, mid-2011 onwards the company will have all its four rigs running simultaneously, provided they all get deployed at the earliest. Assuming comparable charter rates for all the four drilling rigs, they can generate . 375 crore revenues and . 190 crore of operating profits annually from FY12 onwards. This will mean a 40% growth compared with the FY10 numbers.
World over the charter rates of drilling rigs have once again started moving up after crashing in 2008 and staying low through 2009-2010. This trend is expected to strengthen the offshore support industry’s outlook in months to come.