>GREAT OFFSHORE LIMITED: Weathering cyclical waves

Great Offshore (GOL) is one of the largest offshore logistics companies incIndia with operational track record of over 25 years. It is operating in allcsegments of offshore oil field services with a diversified fleet of 47 vessels.

The company has demonstrated its competance in new ventures such ascmarine engineering and construction projects.

■ Capacity addition to drive earnings growth
The company has acquired 6 vessels (5 OSV and 1 jack-up rig) in FY10 at an outlay of INR5bn. GOL has 2 vessels (1 Jack-up and 1 MSV) on order and has plans to modernise fleet to tap the requirements of growing deep water exploration market.

■ Under exploited domestic E&P industry
Growing energy demand and high energy import dependency (~80%) along with unexplored domestic market, makes strong case for growth in offshore industry. Significant growth potential in domestic E&P is expected as only 44% of sedimentary basins initiated exploration with low drilling density. The overall drilling density in offshore is 1.09 compared to exploration activities
in shallow water with density of 54.2.

■ Favourable macro scenario
The strong supply side fundamentals with concerns on additional supply and growing energy requirement, particularly in emerging countries, are raising concerns on energy security. ‘Peak oil’ and ‘decline in spare capacity of OPEC’ are expected to remain the key drivers for exploration activities.

Valuation
At CMP of INR433, the stock is trading at 9.1xFY11 and 6.5xFY12 earnings of INR47 and INR66, respectively. We have valued the company on an earnings multiple of 8.5xFY12, which is 35% discount to four year average P/E. We initiate coverage with BUY recommendation and a target price of INR565, representing an upside of 30% from current levels.

To read the full report: GREAT OFFSHORE