Buy Great Offshore Results a shocker- but the worst is over :: Emkay

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Great Offshore

Results a shocker- but the worst is over

BUY

CMP: Rs 286                                       Target Price: Rs 425

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n     APAT at Rs18.3 mn (-96.3% yoy) – sharply below estimates. Revenues at Rs1.95bn down 22.3% yoy dragged by lower utlisation of rigs Badrinath, Kedarnath & construction vessel

n     EBITDA at Rs732 mn (-41.4% yoy). EBITDA margins down 1220 bps to 37.6% led by lower revenues & increase in repairs & maintenance and other exp. 

n     Cut FY11E/FY12E EPS 38.7%/ 16 % led by lower fleet utilisation & delayed deployment of Rig Amarnath and new 350 ft rig V351

n     Believe worst over for GOL - high yield rig fleet deployment to drive 79% earnings growth in FY12. Maintain BUY as valuation at PER of 4.9X leaves little downside – TP Rs425

Topline down 22.3% due to lower fleet utilization - below estimates

GOLS’ revenues for the quarter declined 22.3% yoy to Rs1.95bn with offshore services

revenues at Rs1.79 b n (down 16.3% yoy) and Marine Construction revenues at Rs150

mn (down 58.3%). The sharp decline in revenues was led by

¡ Rigs Kedarnath and Badrinath worked for 43 days and 29 days respectively as

compared to 92 days of operation in Q3FY10 leading to revenue of loss of ~Rs460

mn.

¡ AHTSV’s and construction vessels witnessed soft spot charters

¡ Construction vessels saw utilisation of just 43% as compared to 100% in Q3FY10

¡ Engineering and projects revenue at Rs150 mn declined 58.3% yoy due to

implementation of ongoing projects not reaching revenue recognition levels.

EBIDTA decline 41.4% -margins shrink 1220bps yoy ~ 37.6%

With lower revenues growth and operating leverage working against the company this

quarter, EBITDA for the quarter at Rs732 mn, declined sharply by 41.4% yoy (our

estimate of Rs1.26bn).Aggregate EBITDA margins for the quarter contracted 1220 bps

to 37.6%.

Depreciation charges up 37% drags down APAT by 96.3%

With addition of 6 vessels in FY10 GOL’s depreciation charge at Rs471mn increased

37% yoy whereas interest expenses jumped 5.4% to Rs279.5 mn. Consequently PAT

declined 96.3% yoy to Rs18.3mn, sharply below estimates.

On a consolidated basis, revenues at Rs2.2bn declined 23.5% yoy and reported a loss

of Rs25 mn.

Cut FY11 earnings by 38.7% (EPS of Rs32.9) & FY12 by 16 %( EPS of Rs58.8)

– lower target to Rs425

We are downgrading our FY11 EPS estimates by 38.7% (EPS of Rs32.9) & FY12 by 16 %(

EPS of Rs58.8), led by lower fleet utilization & delayed deployment of Rig Amarnath and

new 350 ft rig V351. We also lower our target on GOL to Rs Rs425 (Rs503 earlier) which is

based on average of 1) 7X PER 2)1.2X P/B & 3) 5.5X EV/EBIDTA for FY12 number.

Believe worst is over for GOL- Valuation at 4.9X FY12E PER leaves little

downside – Maintain BUY

Though GOL’s quarterly performance was significantly below expectation, we believe this

aberration is due to minimal operations from high yield vessels in the quarter. We remain

bullish on GOL, as revenues to start from high yield vessel (rig Amarnath) by mid Feb

coupled with renewal of contract for its other vessel (rig Kedarnath ,day rate of USD 69K v/s

USD46k earlier) to get company’s earnings performance back on track. The delivery of a

350 ft jack up rig (V351) by the end of FY11 is expected to help the growth momentum in

FY12. Maintain BUY as valuation at PER of 4.9X leaves little downside. Target - Rs425.