Great Offshore – Review

Great Offshore’s promoters pledged ~13% of their equity holding with Bharati Shipyard to raise money. The shares are pledged with two wholly owned subsidiaries of Bharati Shipyard. While this does not have a fundamental impact on Great Offshore’s financials, it does raise concerns on the promoter’s ability to withhold a stock liquidation.

Q2FY09 revenue slipped by 5% y-o-y to Rs 1593.4 mn and 21% q-o-q. The decline in revenue was due to a decrease in revenue days as two platform supply vessels and a multi support vessel had to undergo emergency repairs. Other income stood at Rs 209.1 mn, up by 21% y-o-y on account of a forex gain of Rs 207 mn due to fluctuation in forex rates.

Bharati Shipyard may delay the delivery of the rig from December 2008 to March 2009. A delay in delivery by one quarter could reduce our FY10 EPS by 7%. In addition, checks indicate that the offshore support vessel (OSV) pricing is holding up for most of the contracts signed until the end of May 2009.

In the near term, there could be a lower utilisation rate and dayrates. In addition, the recent concerns’ surrounding the stock and the financial health of the company.

The core business has not shown severe weakness, the company has on order one 350 ft Jack-up rig and a Multi Purpose Supply Vessel (MSV). The former is expected to join in Q4FY09 and the latter in Q2FY10. Both vessels will drive earnings and improve margins over the next two years. EPS for FY10 is expected to be between Rs 65 to Rs 70. However, for FY09 it is likely to take a beating in the current and next quarter.