Query Corner: Adani Enterprises, Great Offshore, OnMobile, SREI infra, Sterlite Technologies, Ion Exchange, Jayshree Tea ::Business Line

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Please let me know the technical prospects of Adani Enterprises bought at Rs 374.

A. Pradeep Kumar

Adani Enterprises (Rs 288.3): Adani Enterprises went into tailspin between July 2011 and January 2012. The stock dropped from Rs 765 to Rs 261 in this period. The recovery in January from this trough could not get past the first medium-term resistance at Rs 456 and the stock is pinning out of control again.

Immediate support is at the recent trough at Rs 261. This also coincides with the trough formed in March 2008. If this low is breached, next halt can be at Rs 220. Further fall will drag it to the March 2009 trough at Rs 120.

Investors should, therefore, hold the stock only as long as it trades above Rs 261. Resistances for the months ahead would be at Rs 456, Rs 515 or Rs 574. Long-term view will turn positive only on a move above Rs 574. Investors with a smaller investment horizon should, therefore, divest their holdings if the stock struggles to get past these resistances.

Hold Great Offshore; Target : Rs 122 ::ICICI Securities (PDF link)

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http://content.icicidirect.com/mailimages/ICICIdirect%20GreatOffshore_Q3FY12.pdf


I n t e r e s t   c o s t   c o n t i n u e s   t o   d e n t   p r o f i t s …
Great Offshore (GOL) reported a 5% QoQ increase in standalone revenue
to | 211 crore (I-direct estimate: | 203 crore) while net profit registered a
27% rise to | 8.3 crore (I-direct estimate: | 9 crore). GOL’s EBITDA margin
declined for the second continuous quarter with a 200 bps QoQ decline to
41.6% (I-direct estimate: 39.4%). The QoQ decline in EBITDA margin has
led to EBITDA remaining flattish at  | 87 crore. Though the depreciation
remained flat, interest cost continued its upward trend and increased by
8% QoQ to | 48.1 crore. GOL’s profitability has been burdened by
increasing interest cost for the past few quarters. GOL’s debt has been
spiralling and increased from | 2343 crore in FY10 to | 3218.5 in FY11.
Interest  as  a  percentage  of  EBITDA has risen from 36.6% in Q3FY11 to
54.9% in Q3FY12, which has severely pressurised the bottomline. For
Q3FY12, GOL reported a loss before extraordinary income of | 10.9 crore.
The company has accounted for an extraordinary profit on sale of assets
to the tune of | 19.2 crore, which has enabled it to report a net profit of
| 8.3 crore. For 9MFY12, GOL has reported revenues to the tune of | 630
crore and a net profit of | 69.6 crore, which has been primarily driven by
extraordinary profit on sale of ships of | 67 crore.

Hold Great Offshore; Target :Rs 122:: ICICI Securities

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L owe r   r e v e n u e ,   h i g h e r   i n t e r es t   c o  s t   d e n t   p r o f i t s…
Great Offshore (GOL) reported a dismal performance, which was below
our estimates on both the revenue as well as profitability front. On a QoQ
basis, revenues reported an 14%  decline to | 187.2 crore (I-direct
estimate: | 234.5 crore) while net profit declined by 88.2% to | 6.5 crore
(I-direct estimate: | 18.1 crore). GOL’s EBITDA margin dipped 891 bps on
a QoQ basis to 39.5% and EBITDA declined by 30%. GOL’s debt has been
spiralling and increased from | 2343 crore in FY10 to | 3218.45 in FY11.
Lower EBITDA generation and higher  interest cost (interest cost as
percentage  of  EBITDA  is  up  from  32%  in  Q1FY12  to  60%  in  Q2FY12)
along with absence of extraordinary income have led to a severe decline
in net profit.
ƒ Fleet status
During Q2FY12, GOL sold three vessels namely, Malaviya six, Malaviya
12 and Malaviya 34 reducing the fleet size to 44 vessels consisting of two
drilling units, 26 offshore support vessels, three marine construction
assets, a floating dry dock and 12 harbour tugs. A drilling rig and a PSV
are on order and are expected to join the fleet by December 2012.
ƒ Earnings revision
We have revised our earnings estimates for GOL to factor in the impact of
a) lower-than-expected performance in H1FY12, b) reduction in fleet size
c) change in exchange rate assumptions for FY12E and FY13E and d)
some other minor changes. We have revised downward our earning
estimate for FY12E by 42% to | 21.9 and FY13E earning estimate by 43%
to | 22.4.
V a l u a t i o n
At the CMP of | 116, the stock is trading at 5.2x FY13E EPS of | 22.4 and
0.33x FY13E book value of | 348. GOL’s profitability has been driven by
exceptional income in FY11 (| 58 crore) and H1FY12 (| 48 crore), which is
a serious cause for concern as majority of the operating profits have been
eaten out by interest and depreciation costs. We have valued the stock at
0.35x (Q1FY12 0.65x) FY13E book value to arrive at a price target of | 122.
We have downgraded the rating from BUY to HOLD.

Great Offshore (Rs 114.1): Buy :: Business Line

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We recommend a buy in the stock of Great Offshore from a short-term perspective. It is seen from the charts of the stock that it has been on a long-term downtrend since the peak formed at Rs 580 in December 2009. Moreover, medium- and short-term trends are also down for the stock.

However, following a steep decline from Rs 145, the stock registered its 52-week low at Rs 108.5 on October 25 and is finding support around this level. On Wednesday, the stock bounced up four per cent accompanied by above average volumes, triggered by positive divergence in daily relative strength index as well as daily moving average convergence divergence indicators.

Further, weekly RSI and MACD are also displaying prolonged positive divergence indicating possibility of trend reversal in the stock. Daily RSI is inching higher in the bearish zone towards the neutral region and weekly RSI is recovering from the oversold territory.

Taking a contrarian stance on the stock we are bullish on it from a short-term perspective. We expect the stock to move higher and reach our price target of Rs 118 or Rs 121 in the upcoming days. Traders with short-term perspective can buy the stock with stop-loss at Rs 111.

GREAT OFFSHORE: Balance sheet woes : BNP Paribas

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Balance sheet woes
CHANGE
We update for FY11 annual report; cut EPS 70-75% for FY12/13E
GOFF’s debt increased 37% in FY11 as it extended loans and advances to
its subsidiaries and for purchasing assets. Working capital was very tight
in FY11 as payments from ONGC (ONGC IN) were volatile. The subsidiaries
continue to report losses and continue to see higher investments from the
parent company (see Exhibits 1 and 3).
CATALYST
Long due delivery of jack-up rig and potential contract win
V-351, the rig originally ordered from Bharti Shipyard, continues to be
delayed with a new timeline of Jan 2012. Timely receipt of the rig and an
immediate contract would be a near-term catalyst for GOFF. We expect
V-351 to start by April 2012 at USD110,000/day. One month early charter
or a USD10,000 surprise in day rate would raise EBITDA by 4-5%.
VALUATION
Valuation attractive but operational/financial concerns prevail
Our REDUCE is mainly due to increased debt and GOFF’s limited ability to
repay it in a timely manner. We cut TP to INR105 (from INR337), to reflect
EPS revision, based on 6.5x EV/EBITDA on FY13E, in line with domestic
peers. Recent sale and purchase of assets along with purchase of new
subsidiaries with no clarity concerns us. Risk: Superior charter terms.
KEY CHART
Revenue mix mostly unsecured; risk to cashflow exists


Key Earnings Drivers & Sensitivity
We provide sensitivity of FY13E EBITDA and fair value, to
charter of V-351, rig ordered from Bharti Shipyard
We estimate 4-5% impact on EBITDA for 3-month
delay/advance in charter operations
In the best case of USD10,000 dayrate surprise along with 2-
month early charter results in 61% upside from current
levels, while a 5-month delay on weak dayrate of USD100,000
provides similar downside


The Risk Experts
Our starting point for this page is a recognition of the macro
factors that can have a significant impact on stock-price
performance, sometimes independently of bottom-up factors.
With our Risk Expert page, we identify the key macro risks
that can impact stock performance.
This analysis enhances the fundamental work laid out in the
rest of this report, giving investors yet another resource to
use in their decision-making process

Buy Great Offshore; Target :Rs 266 ::ICICI Securities

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Great Offshore


I m p r o v e d   o p e r a t i n g   p e r f o r m a n c e …
Great Offshore Ltd (Great Offshore) reported an improved operating
performance on a QoQ basis with revenues and EBITDA increasing by 6%
and 61%, respectively. EBITDA has increased mainly due to lower project
expenses and decrease in repairs and maintenance expense due to lower
dry docking. EBITDA margin has improved by 1670 bps to 48.4%. Great
Offshore booked profit of | 47.8 crore on sale of a jack up rig (Amarnath),
which enabled it to report 15% QoQ growth in net profit to | 54.9 crore.
Though the company has secured long-term contracts at higher rates for
two of its assets Viz. “Badrinath” and “Kedarnath”, lower project income
and sale of jack up rig “Amarnath” would offset the same and we expect
the topline to remain flat over the next two years.

ƒ Strong operating performance in Q1FY12
Great Offshore reported 5.5% QoQ rise in topline at | 218.6 crore in
Q1FY12. The main factor contributing to the rise in topline was
deployment of its drilling rig Kedarnath on long-term charter contract
with ONGC at a higher rate. The company’s EBITDA also improved to |
105.8 crore with expansion in EBITDA margin by 1670 bps to 48.4% in
Q1FY12. Though interest and depreciation declined by 8% and 10%,
respectively, higher tax outgo to  the tune of | 38 crore (including
deferred taxation of | 21 crore) has resulted in the company reporting a
modest increase of 15% in net profit to | 54.9 crore.
V a l u a t i o n
At the CMP of | 223, the stock is trading at 5.6x FY13E EPS of | 39.5 and
0.55x FY13E book value of | 408.4. We have valued Great Offshore at
0.65x FY13E book value to arrive at price target of | 266 and recommend
a BUY rating on the stock. Existing investors should also continue to hold
the stock.

Great Offshore: Buy Target : Rs 343:: ICICI Securities,

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Great Offshore -Performance to improve in FY12…
Great Offshore Ltd (Great Offshore) reported disappointing results in
Q3FY11 with its topline declining 18% YoY while net profit registered a
decline of 96%. Lower fleet utilisation was the main contributor to the
decline in topline with drilling rigs and construction vessels utilisation
at 43% in Q3FY11 against 100% in Q3FY10. Going forward, we expect
revenues in FY11 to decline by 7% to  | 1081.2 crore but expect 23%
revenue growth in FY12 as utilisation levels of its drilling rigs increases.
Two of its assets (jack-up rig Kedarnath and drill barge Badrinath) have
secured long-term charters for five and three years, respectively,
providing substantial revenue visibility as they would be operating at
100% utilisation levels in FY12.

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

---

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

Research Views: Emkay: Nov 12, 2010

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Contents

n        Research Views

Indotech Transformers Q2FY11E Result Estimates

Expect improvement qoq after 5 qtrs of disastrous performance. Expect volume growth of 100% led by pick up in order inflow and flat realizations to result in revenue growth of 100% YoY. Expect positive EBITDA margins of 8.2% and PAT of Rs21mn. Key things to watch - (1) commentary on GE PROLEC’s plans for ITL, (2) order inflows & realizations and (3) margins outlook.

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

---

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 

ICICI Securities: Buy Great Offshore: Target Rs 444

Steady play…
Great Offshore Ltd (GOL) is the most consistent player among Indian
offshore shipping companies with a steady rise in revenue, stable
margins and steady return ratios. The company also has a sizeable
presence in the Indian offshore space with a diversified fleet of 46
vessels consisting of 28 offshore support vessels, 12 harbour tugs, three
construction barges and three drilling rigs. The company has a
successful operating track record and long-term contracts with
domestic and foreign oil exploration and drilling companies.
Stable performance to continue
We expect revenues to grow by 21% in FY12E as utilisation levels of its
drilling rigs increases. Three of its drilling rigs (Badrinath, Kedarnath and
Amarnath have secured long-term contracts and will be operating at
100% utilisation levels in FY12. The company has a slightly higher debt
equity ratio of 2.1 but this is not a concern as the ratio is expected to
improve to 1.1 by FY12 as it has completed most of its capex spend with
very marginal new capex over the next two years while the earnings from
operations are expected to rise significantly over the same period.
Valuation
We have valued Great Offshore on multiple valuation parameters and
recommend BUY with a price target of | 444.