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Published by: Jagadeeswara Reddy S on Dec 29, 2011
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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


  

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


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

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



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 FY’11

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 ?

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