>GEOMETRIC (ANGEL BROKING)

Performance highlights

■ Global slowdown takes toll, Top-line crashes sequentially: For 4QFY2009, Geometric recorded a 12.9% qoq de-growth in Top-line (growth of 12.3% yoy). This was on account of the intensifying global economic slowdown and particularly in the segments in which the company operates. Geometric is witnessing a ramp down from major customers and this is having an adverse impact on its business. All three segments of the company saw a fall in revenues sequentially, with Software Services falling 11.8% qoq, Engineering Services contracting by 15.7% qoq and Products 10.2% qoq. Revenues in US Dollar terms fell 15.6% qoq and even on a yoy basis, contraction of 11.7% was recorded. Billing rates in Software Services witnessed a fall, another factor that impacted Top-line. The average realised Rupee rate for the quarter rose 3.1% qoq and 27.1% yoy to Rs50.47 v/s Rs48.96 in 3QFY2009 and Rs39.71 in 4QFY2008. The company actually witnessed a yoy growth in Rupee revenues entirely on account of this factor. Thus, the worsening business environment continues to negatively impact Geometric. We believe, with major companies like General Motors and Chrysler in a major crisis (Chrysler recently filed for bankruptcy), the impact particularly on the Engineering Services Business is expected to be severe. On yoy basis, Software Services grew 20.8% and Products 12.3%, while Engineering Services saw a fall of 1.1%. The slowdown is beginning to increasingly envelope Geometric every quarter. Its major automotive clients are in a fairly perilous financial position. With demand slowing down, this sector has suffered. The company saw lower order inflows for the third consecutive quarter (US $4.6mn v/s US $5.4mn in 3QFY2009). Thus, all indications point to a more challenging environment for Geometric.

■ Higher SG&A, lower billing rates, one-time costs hammer Margins: In 4QFY2009, Geometric recorded a significant 917bp qoq fall in Margins due to higher SG&A costs, lower rates and one-time employee retrenchment costs. On a yoy basis, Margins fell by 302bp again due to higher SG&A costs. In absolute terms, EBIDTA fell by over 53% qoq and by 12.5% yoy.

■ Lower Margins, Forex losses lead company into the red: On account of the Margin contraction witnessed and Forex losses to the tune of Rs24.9cr, as well as higher Interest and Depreciation Costs, Geometric recorded a Net Loss of Rs20.5cr in 4QFY2009 (Net Profit of Rs1.8cr in 3QFY2009). Thus, the company has posted a disappointing performance this quarter and will require the global economy to resume its upward trend to help bring better times for the company.

To see full report: GEOMTERIC

>GATEWAY DISTRIPARKS LTD. (SBICAP SECURITIES)

REASONABLE PERFORMANCE AMIDST UNCERTAIN ENVIRONMENT

GDL reported its 4QFY09 net profit at Rs 125.5 mn (- 21% YoY) below our expectations. Revenues grew at a modest pace of 53% YoY to Rs 1230 mn led by 70% YoY growth in volumes in rail operations and strong realisations of Rs 7600 per TEU as against Rs 6000 per TEU in Q4FY08 in CFS business. Volumes have fallen for the CFS business from 87,977 TEUs in Q4FY08 to 70,004 TEUs (-20% YoY) in the current quarter but strong realisations per TEU have led to revenues from the CFS business increase marginally by 2% YoY. Nascent Rail business continues to be in red which we believe would break even by FY11E. But overall a good performance by the company. We reiterate BUY

Brief highlights for the quarter

■ Revenues grew by 54% YoY in 4QFY09 to Rs 1231 mn mainly led by strong realisations of Rs 7600 per TEU across in CFS business as well as the ramp up in the rail business.

■ Operating margins fell sharply by 200 bps to 28% YoY led by diversification into low margin rail operations.

■ Interest costs and depreciation charges jumped sharply as GDL raised debt for the business (for acquiring rakes) and land acquisition for the new ICD’s during the preceding quarter.

■ The tax rate for the quarter was at 21 % as the company had 80IA benefits for its investments in ICDs and CFSs.

■ As a result, net profit after minority interest fall by 21% YoY to Rs 233 mn in 4QFY09.

SEGMENTAL SNAPSHOT

CFS business – subdued volumes but high realisations
With GDP and EXIM trade growth slowing, volumes handled at various ports by Gateway’s CFS business have also witnessed significant drop at 70,004 TEUs for the quarter dropping by 10% QoQ (77441 TEUs in Q3FY09). The realizations also dropped significantly to Rs 7595/TEU
as against Rs 8993/TEU in Q3FY09 (but grew YoY from Rs 5932/TEU in Q4FY08). The realization per TEU is as per our expectation. We believe it is primarily on account of much higher ground rent earned on account of stacking of containers at the ports and secondly on account of rationalization of rates by the CFS operators .

Container train business – increase in losses due to lower capacity utilization
As expected, Gateway's container train business losses have increased as compared to previous quarter. The volumes handled by the train business at 19,868 TEUs grew by 23% on a sequential basis. Realizations improved at Rs 31,256/TEU and EBITDA margins registered drop of 600 bps YoY. For FY09, losses in the container train business increased to Rs 248 mn as against loss of Rs 82 million during FY08. We believe the company today operates 15 rakes (13 owned and 2 leased) which we expect they would ramp up to 30 rakes by end of FY11.

To see full report: GATEWAY DISTRIPARKS

>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

>VARUN SHIPPING (ICICI DIRECT)

Company Background
Varun Shipping (VSCL) is the largest Indian player in the LPG carrier segment with a fleet of 11 LPG carriers. The company has a fleet strength of 21 vessels comprising three double hull crude carriers and seven offshore vessels (five high-end modern AHTS and two low-end AHTS) other than the 11 LPG carriers. Currently, VSCL has a presence across three shipping segments, namely LPG, crude oil, and offshore.

Investment Rationale
Major presence in niche and less volatile medium gas carrier (MGC) segment VSCL is the largest medium-size gas carrier (MGC) owner in India having 10 MGC carriers with a capacity of 239,437 dead weight tonnage (dwt). VSCL has a 16% worldwide market share in the MGC fleet. MGC day rates are comparatively less volatile than the large and very large gas carriers as MGCs are used for specific regional routes on which the deployment of larger vessels is technically unfeasible. Moreover, MGCs can alternatively be used for ammonia transportation, which is usually traded in smaller quantities and is suitable to be transported by MGCs. A total of 11% of the world’s total ammonia production is transported by sea. Variability in VSCL’s revenues is likely to be less owing to lower volatility in MGC day rates.

Enhancing presence in lucrative offshore segment
VSCL has enhanced its positioning in the offshore segment by acquiring a fifth high-end anchor handling towing and supply vessel (AHTS). Acquisition of these vessels forms a part of VSCL’s capital expansion programme of US$400 million, initially announced in January 2008.

VSCL currently owns seven AHTS vessels, out of which two old low-end vessels are on charter with ONGC, while two high-end ones are on long-term contract with Reliance Industries. VSCL’s revenues from the offshore segment have risen substantially form Rs 23.91 crore in FY07 to Rs 165.56 crore in FY08.

The revenue mix is changing in favour of the high–margin offshore segment. Revenues from the offshore segment are expected to increase from 22% in FY08 to 29.6% in FY10E, while revenue contribution from the LPG segment is expected to come down from 62.4% in FY08 to 52.1% in FY10E.

To see full report: VARUN SHIPPING