Company background
Dredging Corporation of India Ltd. (DCI) is the largest player in the maintenance dredging market in India with a market share of over 85%. It has a capacity of 80mn cubic meter and operates at around 100% capacity utilisation. Dredging Corporation has 10 Trailer Suction Hopper Dredgers (TSHD) and 2 Cutter Suction Dredgers (CSD). DCI executes maintenance dredging contracts at the Kolkata, Haldia, Paradip, Vizag, Kochi and other ports. The thrust on developing the port infrastructure would throw up opportunities worth Rs. 60bn for DCI. Further the Sethusamundram project alone would be throwing a big opportunity for DCI.
| Key Investment Points. | |
| • | Huge Dredging opportunities: The National Maritime Development Programme (NMDP)has earmarked an investment of Rs 603bn in port infrastructure creation till 2014.This would lead to investment in various dedging projects to the extent of Rs 60bn in various capital dredging projects. Dredging work worth Rs. 2.3bn is currently in progress at Paradip port. Going forward a large number of such kind of capital dredging projects are going to be executed. DCI being the market leader would get a large share of the opportunity. DCI’s growth rate has been impacted due to the lack of Dredgers. The company plans to get over the shortage of Dredgers by taking Dredgers on lease. This would impact the margins on incremental revenues as lease rentals would be high. Therefore operating margins on incremental revenues would be lower. |
| • | Sethusumandram Project is a mammoth opportunity: The Sethusamundram project proposes linking the Palk Bay and the Gulf of Mannar on the east cost of India by creating a ship cannel. The cabinet committee of economic affairs (CCEA) has approved DCI as the capital Dredger for 69mn cubic meter of work. The capital outlay for the project is estimated at around Rs 15-20bn and is to be completed within the next 2-3 years. The Sethusamundram project in itself presents a huge opportunity for DCI. |
| • | Focus on International opportunities: Dredging Corporation is also eyeing the international markets and is in the process of firming up a joint venture partner for setting up operations in Bahrain for carrying out dredging work in the middle east countries. |
| • | Attractive valuations: At current prices Dredging Corporation is available at 9.8xFY07E and 8.6xFY08E and 1.7x FY06 P/BV. Further the company has a zero debt status and has a cash balance of Rs 4.72bn in its books, which translates to Rs. 168 per share. The company also has a decent dividend yield at 2.5% (FY06 dividend). |