IDBI Capital - Garware Offshore Services

IDBI Capital report on Garware Offshore Services:

Summary:

Garware Offshore Services (GOSL), is all set to ride the boom in offshore E&P (Exploration & Production) sector with its expansion plans. The company provides logistics services to offshore oil and gas sector and is planning to increase its fleet size from 6 in FY06 to 14 in FY09.

Going forward, we expect, better charter rates along with increasing fleet size to drive growth for GOSL. Topline is expected to post 64% CAGR over the next 3-years. EBIDTA margin is expected to surge to 65%. Boosting topline and surging margin is expected to lead to robust bottom line performance. PAT is expected to showcase CAGR of 69% in the next 3-years.

The current market price is 10.3x the fully diluted FY08E EPS of Rs.20 and 6.4x the fully diluted FY09E EPS of Rs.32.3. We recommend ‘Buy’ with a target price of Rs 321.

Investment highlights:

Expansion plans

GOSL is betting big on its expansion plans. GOSL is expanding its fleet size from 6 in FY06 to 14 in FY09. The company will be acquiring 2 Platform Supply Vessel (PSV), 3 Anchor Handling Tug cum Supply Vessel (AHTSV) and 2 Accomodation Work Barge (AWB) scheduled to be delivered over the period of next 3-years.

Contracted revenue

GOSL has secured stream of revenues from its long-term contracts. With the fleet expansion and better day rates, revenues from AHTSV’s are expected to post CAGR of 41% over the next 3-years. PSV revenues are expected to showcase CAGR of 74% over the next 3-years. AWBs expected to be delivered in FY09 will earn around US$ 15,500/day. The vessel will produce revenues of around Rs.464m by FY10. GOSL's EBIDTA margins are expected to rise steeply from around 56% in FY06 to 65.7% in FY09.

Tie-up with Havyard

GOSL has signed a Memorandum of Understanding (MoU) with Havyard Leirvik A. S., for sale of ships and designs produced by Havyard group to Indian companies. It is expected to earn revenues in the form of commissions. GOSL is also setting up ‘Workshop Design Center’ as a KPO (Knowledge Process Outsourcing) center in India in collaboration with Havyard Leirvik A. S.

Lower dry docking charges

Dry docking charges are expected to be minimal in next 2-3 years, as all the four AHTSV’s have undergone dry-docking in end 2006. PSV’s are newly built and are expected to require minimal maintenance.