Banking on Great Offshore…
The global oversupply of vessel means that new build orders would be
marginal over the next couple of years, which reduces earnings visibility
for the company from its core shipbuilding business. However, the
acquisition of Great Offshore would immensely help Bharati Shipyard in
the future as it would provide new building orders as Great Offshore
undertakes expansion of its fleet. Great Offshore has a significant
presence in the Indian offshore shipping space and its earnings are
expected to rise over the next couple of years. Bharati Shipyard has
acquired equity as well as management control in Great Offshore. This
would also provide synergies to Bharati Shipyard as the operations of
both companies are likely to get integrated, going forward.
Operating performance to dip post FY11
Bharati Shipyard has failed to bag new build orders of significant size in
the last 1.5 years. This has resulted in the total order book shrinking to |
4998 crore while the order book pending execution has dropped sharply
from | 2560 crore at the end of Q1FY11 to | 1920 crore i.e. a drop of
33.3% on a QoQ basis. Due to the above factors, the topline is expected
to peak in FY11 with revenues of | 1421 crore post which the topline is
expected to correct to | 1143 crore. The EBITDA is also expected to
correct in FY12. However, on account of inclusion of profit from Great
Offshore, the bottomline would drop marginally in FY12.
Valuation
We have valued Bharati Shipyard at 0.60x FY12E P/BV to arrive at our
price target of | 258. We maintain our BUY recommendation on the stock.
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