>BHARATI SHIPYARD (ICICI DIRECT)

Bharati Shipyard’s open offer to Great Offshore
Bharati Shipyard Ltd (BSL) has announced an open offer to acquire 20% equity stake of Great Offshore (GOSL) at a price of Rs 344 per share aggregating to Rs 255 crore. Previously BSL had acquired 55.33 lakh shares at Rs 315 per share (14.89% stake) amounting to Rs 174 crore. Great
Offshore had earlier pledged 14.87% stake with BSL for a loan of Rs 200 crore. BSL is likely to fund the acquisition of GOSL’s share through internal accruals. This open offer is positive for BSL, as it will have a presence in the high margin offshore shipping services segment. Moreover, it is getting a stake in a company that has strong revenue visibility at an attractive price, which is at a discount to the current market price. We feel that BSL will be able to get lesser than the targeted 20% stake in the open offer due to the current market price of GOSL being higher than the open offer price. However, it will be able to increase its stake in GOSL and have effective control of decisions taken by the Board.

Valuations
At the CMP of Rs 174, BSL is trading at 3.3x FY10E earnings of Rs 52.79 and 2.7x FY11E earnings of Rs 64.44. BSL’s strong order book of Rs 5093.71 crore and relative less exposure to the dry bulk segment provides revenue and earnings visibility. We believe BSL’s diversification into the offshore segment through the open offer to Great Offshore will enable it to have a presence in the high-margin offshore segment. We have valued BSL on multiple valuation parameters using global benchmarks, with a target price of Rs 201, providing an upside of 16%.

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