Dolphin Offshore Enterprises - Edging Forward At Sea - Nirmal Bang

Dolphin Offshore Enterprises (India) (DOEL) is an oilfield equipment and services provider. After establishing a strong footprint in diving services and marine operations, the company expanded its wings into EPC services in FY09. However, since its foray into EPC business, the company has faced severe challenges as it found it difficult to bag contracts owing to stiff competition from much more established international players and lack of expertise in carrying out Greenfield expansion activates.

In FY14, the performance in its standalone EPC business plummeted to new lows as order booking dried up with company reporting a standalone net loss of Rs 34 crore owing to an exceptional write-off of Rs 35 crores.

However, despite the woes faced in its EPC business, we believe the marine business to be the cash cow for the company going forward. At a time when the EPC business has been a laggard, the marine operations, on the back of some new vessels added, grew exceptionally, registering a 5-year CAGR of 71% & 156% on the topline and bottom-line front respectively. The FY14 cons. financial performance was also boosted by the marine business as the company managed to report 31% rise in net profit despite the losses suffered in the standalone EPC businesses.

Going forward, we expect the marine business to continue its robust performance on the back of an elite fleet of vessels incorporating the latest technologies prevailing in the industry. While management has guided towards adding new vessels to its fleet over the next couple of years, we have not factored the same into our estimates. Based on our conservative estimates, while we expect cons. FY16E revenues to de-grow further to Rs 264 crore, as the EPC order book visibility remains poor, owing to the higher margins earned in the marine operations we expect PAT to remain stable at Rs 90 crore as its two flagship vessels 'Vikrant Dolphin' and 'Beas Dolphin' (contributing ~95% to marine business revenues) continue to remain on charter and report healthy cash flows. We expect the marine business to report an OCF of Rs 113 crore & Rs 111 crore in FY15E & FY16E respectively, against an FY14 cons EV of Rs 358 cr.

Prospects on the EPC front are also promising, as the company has bid for new orders in a consortium with other industry players, with its order share at Rs 700 crores. While we have not factored any positive outcome from this, the award of these new orders would certainly put DOEL back on its growth path.

The concern over the contract of Vikrant Dolphin slated to expire in Oct 2014 seems over-played, as management is confident of renewing the contract with the existing charters at better rates. The exclusivity of being one of the only 12 types of vessels around the world, gives the company a good leverage. At CMP, DOEL trades at 2.8x and 2.3x its FY15E and FY16E EPS. We believe that the stock is undervalued considering the cash generating ability of company's marine business. We therefore recommend BUY on the stock at current levels with target price of Rs 215 (4x FY16E EPS of Rs 53.7).

Shares of DOLPHIN OFFSHORE ENTERPRISES (INDIA) LTD. was last trading in BSE at Rs.144.15 as compared to the previous close of Rs. 145.95. The total number of shares traded during the day was 438289 in over 11756 trades.

The stock hit an intraday high of Rs. 152.5 and intraday low of 142.45. The net turnover during the day was Rs. 64518148.

Source : Equity Bulls

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