NMP24 Group 10
Amit Kumar -03 Brahmanand Jha - 09 Krishnakumar Chirakkal-10 Darshan Joshi -11 Dinesh Gangwar - 13 Jagdeeshwara Reddy S 14 Parvaz Alam Khan 19
Security Analysis and Business Valuation - Prof. Sanjay Bakshi
Agenda
Company Profile Evaluating the Business & Management Company Analysis Future Prospects Recommendations
Company Profile
SEAMEC - provider of Diving Support Vessel - subsea inspection, repair, maintenance and light construction required for offshore oil production.
Debt free company.
Vessels Seamec I
Past yr Perf 287 days
Current Status long term charter with DOEL for two years firm with option for extension. Start time -16th May 2011 long term charter for 3 years with HAL OFFSHORE LTD for ONGC work. Start time Nov 2011 (likely) charter till Mar 2013 with option for extension. Start time - 19th May 2011
Comment Good prospect Good prospect Concern
Seamec II 279 days
Seamec III
23 days
Seamec Princess
129 days
charter with M/S KREUZ SUBSEA PTE LTD for a firm period of 30 days with option for extension. Start time 2nd
Concern
Is this a good business ? Why ?
Demand driver - oil prices, production platforms, operational drilling rigs, day rates and fresh E&P activity. Cyclic business due to high volatility in oil prices.
High Capital Intensive business vessel.
Cash Inflow when vessels are in operations.
USD 50000 per vessel per day
Cash Outflow when vessel not in use (Dry dock expenditure).
USD 6500 per vessel per day dry dock charge.
Past decade Regulation in offshore hiring of vessels - favorable to company Current shipping lobby tilting towards Indian shipyards cause of concern
Low threat of entry - current status - uncertain.
Increased bargaining power of Clients regulation and bid - price slash 30-40% Offshore activities - shallow water that favours small and mid-sized DSVs. Deep water drilling is future that requires large sized DSVs. Operation and maintenance cost increases with age of fleet.
Is this a good business ? Why ?
No Moat - Switching cost, Intangible asset, network effect, cost and size advantage.
Current Impact (More likely) Reasons
Economic Indicator
Growth in revenues
Market share Profit Margin
Decrease
Decrease Decrease Decrease Decrease Decrease
less demand for large vessels.
foreign player and Shipbuilders. Low cost bidding, costly operation and -do-do-do-
Growth in Profits Growth EPS
In short term, this business does not look maintenance due to aged fleet good.
Capital Efficiency
Return on Capital
Decrease
-do-
Is this a good business ? Why ?
Moat core competence in specialized offshore activities - 38 years. Entry Barrier
Future Impact (More likely) Reasons
Economic Indicator
In short term, it may not lookdemand for large vessels. Increase More good business but in long term it is good Market share Decrease business. foreign player and Shipbuilders. Reason black gold (oil) is scarce. Profit Margin Increase High revenue per day and more utilization. More demand due to rising population Growth in Profits and Increase economies (BRICS). -doemerging Growth EPS Increase World has no option but to explore -dooil until Capital Efficiency more Increaseunless some substitute is -doReturn on Capital Increase not found. -doGrowth in revenues
How good is management ?
Operating Skills
Failed to predict gloomy economy in 2009. Failed to explore diversifying its operations with huge PAT:203.9 cr With good growth predictions In 2003 , management failed to upgrade or purchase a new vessel for expansion.
Capital Allocating Skills ( What have been done with free cash flows )
Company was sitting on pile of cash without using it for expansion in the last 10 years. Declared 30% dividends on 8th June 2010
Management Salary ?
Company is not making profit yet paying hefty salary to MD
What was the good time to buy the stock in past ?
Earnings Book Value P/E ratio P/EBIDTA
What happened in FY11
The residual life of vessel SEAMEC Princess has been reassessed by approved Surveyors. Based on the surveyors report residual life of the vessel Seamec Princess has been considered as 15 (fifteen) years with effect from March 16, 2008.
What do you like about the Balance Sheet ?
The Economics of a Diving Support Vessel
How to value the Stock ?
Is it Cheap ?
How would you predict future earnings ?
How would you deal with uncertainty ?
