India derives more than 37% of its primary energy requirements from hydrocarbons (crude oil and natural gas). Of the 165 blocks offered in the six rounds of NELP, 102 have been offshore blocks. This offering has resulted in a huge capital expenditure planned for the offshore segment.
Garware Offshore Services Ltd (GOSL) currently has four Anchor Handling Tugs – cum – Supply Vessels (AHTSV) and three Platform Supply Vessels (PSV). Further, it has embarked upon an aggressive capex plan to acquire two PSVs, two 60-T AHTSVs and one construction barge (on lease).
PSVs command higher margins in comparison to AHTSVs. With increase in number of PSVs in GOSL’s fleet from one in CY05 to five in CY08, operating margins for GOSL will increase substantially. GOSL has entered into a tie-up with Havyard, a Norwegian shipyard, to sell its ship designs and ships in India. The commission for the sale of a ship or a ship design ranges from 3-4%. GOSL is also setting up a KPO for designing ships for Havyard in India.
Consensus estimates GOSL to register a CAGR of 57.6% in revenues and 64% in PAT during CY06-CY09. The stock at CMP of Rs242 is available at 8.4x CY09 earnings. With long term contracts tied up for most of the vessels, we believe there exists high degree of visibility for future revenue growth. At 11x CY09E earnings of Rs28.9, the target price works out to Rs318, an upside of 31.5%.