>GREAT OFFSHORE LIMITED (SKP)

Company Profile:
Great Offshore Ltd (GOL) is the largest offshore oilfield service provider to upstream oil and gas companies to carry out offshore E&P activities.The Company currently operates in four major business areas viz offshore drilling services, offshore logistics support services, engineering services and port & terminal support Services. GOL owns state of the art vessels which includes two drilling rigs, twenty seven OSVs, one construction barge and eleven harbour tugs. It generates nearly 80% of its revenues from ONGC.

Investment Rationale:

Ventured in port management and single point mooring operations: GOL has forayed in to port management and single point mooring operations by acquiring 100% equity stake in two Hydrabad based companies KEI-RSOS Maritime Ltd. (KEI) and Rajamahendri Shipping & Oilfield Services Ltd (RSOS) with purchase consideration of Rs 1.6 bn. This EPC accretive acquisition is in line with Great Offshore's strategy of maintaining its leadership in the port & terminal and offshore logistics servises.

Strengthening its fleet by adding new vessels: GOL has ordered two new vessels - a jack up shallow water drilling rig and a MSV with an aggregate cost of USD 168 mn and USD 68 mn respectively. The total number of vessel will become 43 with these two additions by FY11.
Currently the company owns 41 offshore support vessels inclusive of two drilling rigs.

Increasing oil Import bills - Creating Strong demand for offshore vessels: The demand for rigs is expected to rise globally in response to increasing crude prices. India is the net importer of the crude oil. Its import bill has rose to USD 76.61 bn in FY09 from USD 48.39 bn in FY07 due to increase in petroleum demand and rising crude prices. This has led the government to intorduce various policies (NELP for instance) to give boost to E&P activities which are expected to create strong demand for offshore service vessels in the near future.

Outlook & Recommendation:
At the current market price of Rs 360, the stock is trading at a P/BV of 1.16x and 0.95x of FY10E and FY11E book value of Rs 310 and Rs 378 respectively.

We recommend BUY rating on the stock with a target price of Rs 454/- (26% upside) in 12 months implying a P/BV multiple of 1.2x of FY11E book value.

Industry Overview
The offshore shipping industry is highly dependent on oil exploration and production (E&P) activities. The global E&P activities continue to be buoyant on account of robust crude prices, strong demand from India and China and tight OPEC supplies. Oil accounts for around 33% of India’s total energy consumption. India faces a large supply deficit, as the domestic oil production is unlikely to keep pace with demand. This makes India a net importer of oil.

To see full report: GREAT OFFSHORE