>GARWARE OFFSHORE SERVICES LTD (GEPL)

“ Increased asset base lifts up revenue “

Q1FY2010 RESULTS
For Q1FY2010, Garware Offshore Services (GOSL) reported 106% y-o-y growth in revenues to Rs571 million as compared to Rs277 million in Q1FY2009. Increase in revenue was due to addition of 5 assets during the end of FY2009, which increased the revenue days.

The Operating Profit Margin (OPM) of the company declined by 400 basis points y-o-y to 56% in Q1FY2010. The major reason for decline in operating margin is decline in stock in trade. Operating profit by 91% y-o-y to Rs319 million in Q1FY2010.

Interest expenses for Q1FY2010 showed a massive jump of 120% y-o-y to Rs89 million as compared to Rs40 million in Q1FY2009. This increase in debt is mainly attributable to addition of vessels. Depreciation increased by 95% y-o-y in Q1FY2010 to Rs77 million. After deducting tax of Rs1.2 million, PAT witnessed a growth of 74% y-o-y in Q1FY2010 to Rs154 million. Moreover, GOSL gained around Rs11 million in gain on sale of vessels and lost Rs155 million in foreign exchange in Q1FY2009, after giving effects to the extraordinary items there was net loss of Rs55 million in Q1FY2009.

Vessel deliveries are expected to be on time
In FY2010, the 2 vessels (a 60 Tons PSV and a 300 Tons Construction Barge) are expected to join the fleet by middle of the year (on BBC basis) are expected to join as per the schedule.

No dry dockings in Q1FY2010
In Q1FY2010, there was no dry docking activity carried out. In Q2FY2010, 1 PSV is expected to go on dry docking (M.V Kailash), where the amount is expected to be negligible.

In FY2010, Apart from 1 PSV (M.V Everest, which was about to its trip to North Sea) all other vessels were working and utilizations was close to 100%. M.V Everest has already reached to the North Sea and will start working in next couple of days. It will be working on spot.

OUTLOOK AND VALUATION
The outlook for the offshore services sector remains positive as the prices of crude oil remains high above US$60, which is a positive indicator for Exploration and Production activities. Almost all the vessels of the company is employed for around 2 years provides revenue visibility for the company in such bad phase. At the CMP of Rs160, the stock is trading at around at a P/E of 7.0x its FY2010 estimated earnings, 5.5x its FY2011 earnings. We maintain our FY2010 revenue estimate of Rs2,390 million and PAT estimate of R541 million. Hence, we maintain our BUY rating on the stock with same target price of Rs227, which is an upside of around 42% from current levels.

To see full report: GOSL