Great Offshore Results in Line- Upgrade to BUY: Emkay

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Great Offshore

Results in Line- Upgrade to BUY

BUY

CMP: Rs391                                        Target Price: Rs506

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n     APAT at Rs281 mn (-10.5% yoy) – in line estimates. Revenues at Rs1.99bn down 15.5% yoy) dragged by lower rates and absence of revenues from Rig Kedarnath

n     Lower staff and maintenance costs boosts EBITDA margins by 1151bps to 52.6%. Overall EBITDA at Rs1.04bn, up 8.1%yoy – in line with estimates 

n     Cut FY11E/FY12E EPS by 9.6%/4.5% led by delayed ops of Rig Amarnath (mid Dec) and lower day rates for vessels. Remain bullish –deployment of Amarnath & rig V351 to drive earnings 

n     Valuation at 5.6X FY12E earnings ~ 33% discount to Aban offshore, remain compelling – Upgrade to BUY sighting multiple triggers for stock performance - target Rs506 

Topline down 15.5% on account of dry dock of vessels - below estimates

GOLS’ revenues for the quarter declined 15.5% yoy to Rs1.99bn on account of dry

docking of rig Kedarnath (Dry dock period May –Oct 2010). Revenues from marine

construction were absent this quarter due to monsoons. Offshore services revenues

grew a healthy 27.8% qoq as high yield vessels like Malviya 36 (M36) & Malviya 9 (M9)

and Malviya 33 (M33) which were under drydock/repair in Q1FY11 became operational

this quarter. Overall utilisation of OSV fleet was at 80% as compared to 68% in

Q1FY11). Consolidated revenues at Rs2876mn grew 1.3%yoy.

EBIDTA grows 8.1% with margins improving 1151bps yoy ~ 52.6%

GOL’s EBITDA for the quarter atRs1.04 bn, grew 8.1% yoy (our estimate of Rs1.08bn)

with aggregate EBITDA margins for the quarter improving 1151 bps to 52.6%. This is

entirely attributed to sharp improvement in margins of offshore services division (53.1%

as compared to 41.3% in Q2FY11). Further employee costs declined 28.4%yoy to

Rs400mn whereas repairs and maintenance costs declined by 59%yoy taking the total

expenditure to Rs943mn, down 32%yoy, thereby improving margins this quarter.

Depreciation charges up 43% drags down APAT by 10.5%

With addition of 6 vessels in FY10 GOL’s depreciation charge for the quarter at

Rs453mn increased by 43% yoy, and interest expenses jumped 12% to Rs340.4 mn.

Consequently Reported PAT for the quarter declined 10.5% yoy to Rs281mn, slightly

below estimates. Consolidated PAT declined 2.6% yoy to Rs445mn.

Consolidated Revenues up 1.3%yoy, net profit down 2.6%yoy

Consolidated revenues at Rs2876mn grew 1.3%yoy while net profit declined 2.6% yoy

to Rs445mn. However on a sequential basis it improved by 56.6% driven by interest

cost savings.

Valuation at 5.6X FY12E PER remain compelling – Upgrade to BUY

We remain bullish on GOL as revenues from high yield vessels like Malviya 36 (M36) &

Malviya 9 (M9) are likely to ensure regaining of earnings momentum. Further contribution

from rig Amarnath (Mid Dec) & renewal of contract for its rig Kedarnath (day rate of USD

69K v/s USD46k earlier – Deployment in early Dec) to further fuel earnings momentum from

Q3FY11. The delivery of a 350 ft jack up rig (V351) by the end of FY11 is expected to help

the growth momentum in FY12. Valuation at 5.6X FY12E earnings ~ 33% discount to Aban

offshore, remain compelling. In view of multiple earnings (Deployment of 3 rigs over next 3

quarters) & valuation triggers (High discount to Aban offshore, planned IPO of Great ship

India) we upgrade our rating on stock to BUY (ACCUMULATE earlier). We maintain our

price target of Rs506, which is based on 10% discount to our target valuations for Aban

Offshore. Further our target is based on average of 1) 8X PER 2)1.4X P/B & 3) 6.3X

EV/EBIDTA (on average of FY11 & FY12 number).