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Wednesday, October 28, 2009

Garware Offshore Services Ltd:Future growth prospects and outlook

Scripscan:Garware Offshore Services Ltd

Story:Garware Offshore delivered a subdued performance in Q2FY10 due to under utilisation and dry docking of its vessels. However, with the rise in crude oil prices and increase in fleet size the outlook has significantly improved.Garware Offshore delivered a subdued performance in Q2FY10 as its sales dropped by 5% QoQ to Rs 54.2 crore. Sales dropped as its two AHTS vessels were idle and one PSV was sent for dry docking for 15 days each during Q2FY10. PAT dropped by 59% QoQ to Rs 6.4 crore. However, we expect the company to show a significant improvement in both sales & PAT in H2FY10. Addition of two more vessels to its fleet in Q2FY10 and no dry docking in H2FY10 will significantly increase revenues in H2FY10.Crude oil prices have recovered significantly from their low of $34/bbl in January 2009. With rise in crude oil prices and global economic recovery, oil exploration and drilling activities have once again picked up pace. This has resulted in an improvement in utilisation and also higher day rates for offshore vessels. Garware Offshore has scaled up its operations and in the last quarter added two more vessels (AHTS + barge) to its fleet. This will lead to a rise in revenue. Another positive is that almost 3/4 of its revenue is derived from firm contracts that provide strong earnings visibility.With the ramp up of operations over the last one year, Garware Offshoreis in a position to reap the benefits in the coming quarters and woulddeliver impressive results. We value Garware Offshore at 6x FY11 earnings, with a target price of Rs 203.

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