Dolphin Offshore - GARP:: Edelweiss PDF link

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We recently hosted top management of Dolphin Offshore (Dolphin) to meet institutional investors. We believe the company presents “Growth at a Reasonable Price (GARP)”. Dolphin is a specialised service provider in the oil & gas space, wherein its unique DP2 vessel allows sustainable cash flow, which will help it turn debt free. Once ONGC rolls out tenders for its stated INR100bn plus capex, we believe Dolphin’s EBIDTA (consol) could double. The company also plans to diversify globally. Concerns over its receivables are overstated and in fact the replacement value of its asset could be ~50% higher. The stock trades at 2.2x PER, 0.6x PBV, RoAE of 31% and 46% FY14 earnings yield (consol). ‘NOT RATED’.

Sustainable earnings as Vikrant’s contract should be renewed soon

Vikrant, the company’s DP2 vessel, is its main profit generator, earning a day rate of USD45K and PAT of USD10mn plus p.a. Vikrant’s contract matures by CY14-end and is poised for 1-3 year extension, which may allow it to sustain earnings. Dolphin may also purchase 2 similar vessels for USD70mn, financed by debt and internal accruals.

Domestic offshore oil EPC likely to turnaround

Dolphin’s main customer, ONGC, had nearly ceased orders over past 3 years, shrinking order book to 1/5th of normal levels. Dolphin recently bid for INR10bn of ONGC’s tenders. ONGC should revive capex to INR100bn plus (Dolphin’s addressable capex) as the new government targets to revive production. Even if Dolphin bags 1/10th of upcoming tenders (INR10bn), we believe its EBIDTA (consol) could double.

Receivables not such a big deal, further gains likely

Dolphin expects to reasonably recover INR1.9bn outstanding receivables from ONGC. In fact, there could be potential gains, as Dolphin has not recognised all the claims.

Healthy FCF, near zero debt, valued at 2.2x PER, 0.6x PBV FY14

Ex one-offs, Dolphin’s FY14 EPS is ~INR57, implying PE of 2.2x. In fact, its asset value is higher than its stated BV, and could exceed INR310/share. The company is also poised to be debt free shortly given healthy free cash flow of INR0.6bn (FY14). ‘NOT RATED’.

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LINK
https://www.edelweiss.in/research/Dolphin-Offshore--GARP/27208.html