SEAMEC LTD. (RS. 88/-)

SEAMEC LTD. (RS. 88/-)

Seamec is 78.2% subsidiary of Technip-France and is leading sub-sea contractor providing support services to offshore oil fields in India and abroad. Seamec has 4 vessels and is debt-free. Technip is very optimistic about India and Seamec is an important part of Technip's global scheme of things. In last 2 years, its performance was erratic due to various difficulties. However, now company is on a solid footing and hence the recommendation.

Financial Performance: Rs. in Crs.

.	Q1	YEAR ENDED	Q4
.	CY 09	DEC. '08	CY 08
Net Income	100.12	269.00	104.41
PBIT	62.71	53.47	55.17
Interest	0.15	0.35	0.80
Net Profit	62.56	47.12	54.57
Equity	33.90	33.90	33.90
EPS Rs.	18.45	13.90	16.10

For Year Ended Dec. '08, Company had reported EPS of Rs. 13.90. However, profits would have been much higher but for some unexpected difficulties:

a) Last year, company had acquired a new vessel which was sent to Singapore for retrofitting/refurbishing. This process took longer time. As a result, flow of revenues from this new acquisition was delayed. Moreover, Seamec spent Rs. 28.57 crs. on refurbishing this vessel (otherwise profit would have been higher by 28.57 crs.).

b) Its other vessel Seamec-II suffered an accident. Company is likely to receive claim of more than Rs. 20 crs. on this account.

c) Company had incurred 33.44 crs. as Dry Dock expenditure during the year which was unusually high and Dry Dock expenses in current year are likely to be very very low.

d) Twice Prematured termination of contract.

For the first time, all 4 vessels were fully deployed in Q4 and company earned PAT of 54.47 crs. in Q4 alone. Q4 EPS is Rs. 16.10 which is more than EPS of entire CY08.

Future Prospects: Rs. in Crs.

.	YEAR ENDED
.	31/12/2009
Net Income	370.00
Net Profit	170.00
Equity	33.90
EPS Rs.	50.15
P. E. Ratio	1.75

Seamec has already reported bumper profits for Q1 with EPS of 18.45. CY09 performance is expected to be very good as all 4 vessels will remain deployed fully (barring intermittent idling before redeployment). It has already entered into an agreement with M/s. Dulam of Dubai for deployment of 1 vessel from 16th May for 2 months which will fetch nearly Rs. 22 cr. revenues. It has also chartered another vessel with Condux, Mexico for a period of 6 months from Feb 3, 2009 which will fetch it revenue of around Rs. 55 crs. Seamec has also signed an agreement to charter its other vessel Seamec-II from June 2009 for 1 year which will give revenues of Rs. 81 crs. Seamec is slated to report all time high performance in current year.

Valuations:

Stock is trading at just 1.75 x CY09E EPS. Even in bear market, such valuation will be considered unreasonably low. An MNC which is debt-free and is proxy to high profile oil drilling industry deserves much higher valuations. Its current market cap is just Rs. 300 crs. which is 30% of replacement value of its fleet of USD 210 mn. Seamec is going extremely cheap. Company is bound to get much higher valuations. Our price target:

a) Rs. 125/- in less than 8 weeks.
b) Rs. 225/- in 12 months.

Investors can buy big quantity.

By - Hemant K. Gupta