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Great Offshore: Forex gains aid bottomline - Views on News from Equitymaster
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Great Offshore: Forex gains aid bottomline
May 3, 2008

Performance summary
  • On a standalone basis, revenues grow by 26% YoY in FY08, led by increased utilisation levels of both drilling units and offshore vessels.
  • Operating margins contracts by 2.6% YoY in FY08 owing to increased staff cost and other expenses (both as percentage of sales).

  • Net profits grow by 44% YoY during the fiscal, aided by higher other income, extraordinary income (profit on sale of vessel) and lower tax outgo. Excluding the extraordinary income, net profits have grown by 31% YoY during FY08.

  • On a consolidated basis, topline and bottomline grow by 28% YoY and 39% YoY respectively in FY08.

  • Board has recommended a dividend of Rs 8 per share (dividend yield of 1.2%).

Financial performance snapshot
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Income from operations 1,493 1,850 23.9% 5,368 6,763 26.0%
Expenditure 812 1,120 37.9% 2,762 3,659 32.5%
Operating profit (EBITDA) 681 730 7.2% 2,606 3,104 19.1%
EBITDA margin 45.6% 39.5%   48.5% 45.9%  
Other income 27 20 -23.8% 78 560 617.2%
Interest 133 163 22.4% 360 655 82.2%
Depreciation 220 255 15.7% 697 985 41.4%
Profit before tax/(loss) 354 332 -6.1% 1,628 2,024 24.3%
Extraordinary items - 180   - 180  
Tax 54 88 63.5% 214 171 -19.8%
Net profit 300 424 41.4% 1,414 2,032 43.7%
Net profit margin 20.1% 22.9%   26.3% 30.0%  
No. of shares (m)       38.1 38.1  
Diluted EPS (Rs)       37.1 53.3  
P/E (x)         12.4  

What has driven performance in FY08?
  • Great Offshore (GOL) recorded a 26% YoY growth in topline during FY08. This was largely on account of higher utilisation of assets and better day rates. During the year, the company’s drilling units operated at average utilisation levels of around 96%, while offshore vessels operated for around 9,400 days resulting in an utilisation rate of 83%. The other assets supporting port and terminals also operated at higher utilisation levels of around 89%. As far as day rates are concerned, these increased on account of rise in exploration and production activities coupled with equipment supply constraints.

  • The acquisition of offshore support vessels (OSVs) during the fiscal and the commencement of charters gave impetus to the average earnings in 4QFY08 which grew by 24% YoY. However, the expected increase in profitability has not come in owing to increased cost of operation. Operating margins contracted by 2.6% and 6.1% in FY08 and 4QFY08 respectively. Higher staff and other costs (both as percentage of sales) have taken a toll on the company’s profitability. The significant dry-docking expenses involved in the overhaul of ‘Badrinath’ also put pressure on the company’s full year performance.

  • While the company’s performance at the operating level was subdued, net profits clocked a 44% YoY growth during FY08, leading to almost 3.7% expansion in net margins. This was largely on account of higher other income, extraordinary income (profit on sale of vessels) and lower tax outgo. Even if one were to exclude the gain on sale of vessels, net profits have still grown by 31% YoY during the fiscal. Other income includes net exchange gain of Rs 285 m on account of repayment of outstanding foreign currency loans. If one excludes both other income and extraordinary income for the fiscal, net profits have actually declined by 18% YoY and 3% YoY in 4QFY08 and FY08 respectively.

What to expect?
At the current price of Rs 660, the stock is trading at a multiple of 12.4 times its trailing twelve-month earnings. While the company has outperformed our FY08 estimates on the topline front, the bottomline is lower by 10%. Keeping this aside, the company has continued to benefit on account of short supply of vessels, which has led to higher day rates. We had recommended the stock in February 2007 with a 2-year target that was breached in December 2007. Post the completion of FY08, we shall review our forward estimates for the company and shall subsequently update subscribers of our view.

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