Garware Offshores Services Ltd, “Buy”

Garware Offshores Services Ltd, “Buy”

CMP : Rs 249 Target : Rs 368

Key Highlights of Q4FY08 Results :

*Garware offshore’s quarterly results were in line with our expectations. With revenue growth of 20.83% to Rs 233mn and net profit increased by 7.36% to Rs 57.3mn. However QoQ basis revenue was down by 3.54% because of refurbishment of one AHTSV and dry docking of one PSV. Going forward we expect strong growth in numbers because of increasing demand for offshore vessels coupled with scarcity of vessels will push day rates northward direction.

*Operating profit for the quarter grew by 23% to Rs 142mn as compared

to Rs 115mn corresponding quarter last year, primarily driven by higher day rates.

*On the cost front, Interest cost increased by 27% to Rs 43mn as compared to 34.1mn last year, because of new vessels acquired funded through debt mix of 70:30. And depreciation cost increased by 50% compared to last year.

*Net profit increased by 7% YoY to Rs 57.38mn as compared to Rs 53.5mn corresponding quarter last year.

Outlook

We will see robust growth in GOSL earnings in FY09, because 1) We expect two of the company’s Anchor Handling tug supply vessels will get 20-30% higher charter rate compared to this year as the contract with ONGC and Cairn Energy are getting over in 1QFY09. 2) Garware would be taking delivery of its newly ordered PSV and AHTSV in 1QFY09. This will get reflected in the earnings of 2Q FY09. Going forward we will expecting 31% growth in top line and 28% growth in bottom line in FY09.

Valuations

We expect a continued strong rate environment in the offshore sector over the next 2 years and see GOSL registering EPS growth of 32% in FY09 and 56% in FY10. We think P/E of 9.11x and 5.8x FY 09-10 and P/B of 1.3x Versus 28% ROE for FY09 looks attractive. We recommend a “BUY” on the stock with the price target of Rs 368 over the next 12 months on the FY10 earnings.

NW, April 29, 2008