>Garware Offshore (ICICI Direct)

Fleet expansion to drive growth…
Garware Offshore Services Ltd (GOSL) registered a YoY increase of 115% in revenues to Rs 50.32 crore in Q4FY09 as compared to Rs 23.4 crore in Q4FY08. The rise in revenues was mainly on account of addition of three new vessels (two AHTSVs and one PSV), which are all operating under fixed contracts. The EBITDA margin saw a steep fall of 2062 bps YoY and 394 bps QoQ to 40.36% in Q4FY09. The fall in operating margin was mainly on account of the increase in other expenses to the tune of Rs 20.54 crore in Q4FY09 from Rs 5.35 crore in Q4FY08 (which includes mobilisation expenses of Rs 2.4 crore as two new vessels were inducted during the quarter with dry docking expenses of Rs 1.25 crore). Net profit rose 26.7% to Rs 7.31
crore. However, QoQ it declined by 31.8% from Rs 10.33 crore.

Valuations
GOSL is trading at a 3.53x FY10E earnings of Rs 28.32. Despite a fall in net profit in Q4FY09, we remain positive on GOSL’s growth prospects as we believe the newly inducted vessels with fixed contracts will drive the growth and should contribute positively to its earnings in the next few quarters. At the same time, concerns remain over scaling down of investments in the oil
exploration segment due to weak crude oil prices and the global liquidity crisis. We value GOSL at 4x FY10 earnings, with a target price of Rs 113.

Contraction in EBITDA margin
GOSL’s EBITDA margin declined by 394 bps from 44.3% in Q3FY09 to 40.36% in Q4FY09. The fall in EBITDA margin was on the back of mobilisation charges for the two new vessels it inducted during the quarter as well as dry docking expenditure of Rs 1.25 crore. For FY09, GOSL reported an operating margin of 48.25% as against 56.75% in FY08. We expect the operating margin to improve to 55.17% and 54.20% for FY10E and FY11E, respectively, on the back of addition of new vessels, which are already deployed under long-term fixed contracts.

We expect the net profit to grow at 48.5% and 18.6% to Rs 63.13 crore and Rs 74.9 crore in FY10E and FY11E, respectively. The NPM is expected to improve to 28% in FY11E from 24% in FY09. This is on account of addition of vessels, resulting in a better operating performance and less-than-proportionate increase in fixed cost.

To see full report: GARWARE OFFSHORE