Sailing In Good Weather

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The best way to pick good scrips is to find a company that has performed strongly over the last one year both in revenues and profits despite the gloomy scenario. Applying this test we have come across Seamec, which looks a good pick and has therefore been recommended as our choice scrip for this issue. Seamec is in the business of operating multi-support vessels and specialises in support services for offshore oil and gas installations, pipe laying, inspection and maintenance of underwater structures, sub-sea engineering and construction, fire fighting etc. Coflexip Stena Offshore Mauritius currently owns 75 per cent in Seamec, which in turn is owned by Euro 7.4 billion France-based Technip Group. Currently, Seamec has four offshore supply vessels (OSV) viz. Seamec-I, Seamec–II, Seamec–III and Seamec Princess. Seamec I is currently deployed with Dolphin Offshore in India at $28,000 per day, Seamec II is with Rana Diving in West Africa at $90,000 per day, Seamec III with Condux SA de CV, Mexico at $59,000 per day, while Seamec Princess is deployed with Dulam International, Dubai at $62,000 per day.

There are certain reasons to recommend this scrip. First, despite the weak global scenario the company’s revenues increased by 58 per cent to Rs 268.6 crore in CY2008 (Seamec accounting year ends in December). This growth has come on account of deployment of its fourth vessel Seamec Princess at a higher charter rate. The bottom-line too grew at the strong rate of 27 per cent to Rs 47.10 crore and this growth has come about despite its cost increasing due to dry docking of Seamec II and III and the additional damage repair cost for Seamec II. H109 is even better with Seamec posting topline growth of 110 per cent to Rs 200.50 crore (Rs 95.97 crore), while its bottomline increased to a whopping Rs 121.84 crore from a loss of Rs 9.44 crore dur-ing the same period. In fact, with all the four Seamec vessels not expected to go for dry docking until 2010, the H2CY09 numbers could also be stronger. Dry dock usually ranges from 30-50 days depending on the scope of work and till that time the ships are idle and earn no revenues. Besides, while Seamec I and II are on long-term contracts, Seamec II and Seamec Princess are on a short-term extension, but with exploration activities expected to increase steadily it will create demand for Seamec OSVs.
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That apart, Seamec is also a zero debt company and hence with no interest outgo its profits would remain healthy. The only concern is that the management doesn’t feel that hire charges will increase in a hurry as oil companies are cautious at the moment. But with exploration expected to pick with global recovery, hire charges could increase steadily with a higher OSV demand. Seamec also has not been paying dividends for the last 12 years. Explains C J Rodricks, Managing Director, Seamec: “The company was not faring all that well all these years and it is just that now we have started moving ahead. We were conserving cash basically for investments and looking at opportunities. So that is the reason why there was no dividend.”  However, with Rodricks refraining to comment on the dividend policy going forward we do not know whether Seamec could announce dividend for 2009. For CY09 Seamec could post a topline of around Rs 401 crore and profits of Rs 230-240 crore. At these estimates Seamec is available at a PE of just 2.6x and EV/EBIDTA of 2x, which is quite low. Hence one can buy Seamec a ‘T’ Group company at CMP of Rs 180 with a one year price target of Rs 238.