South East Asia Marine Engineering & Construction Ltd. (Code: 526807) - Rs.190.25

South East Asia Marine Engineering & Construction (SEAMEC) is a 78.24% subsidiary of Coflexip Stena Offshore Mauritius Ltd which in turn is owned by Technip S.A of France, the largest oilfield engineering, construction and service group in Europe. SEAMEC operates multi-purpose support vessels (MSV) for diving and provides underwater/subsea engineering and construction, maintenance, inspection of under-water structures, rescue-operations and fire-fighting and other support services for offshore oil/gas installations located in India or abroad. Hence it is a pure play of charter hiring of MSVs, which are more specialized vessels than Offshore Supply Vessels (OSV) as they are equipped with Dynamic Positioning (DP) system and can go underwater for repair & maintenances of underwater pipelines. Notably, there are just about 30-35 MSVs operating in the world and Technip is the undisputed leader with 17 of them. In India SEAMEC is a leader with 4 out of 6 vessels whereas the balance two are with ONGC.

Earlier, SEAMEC owned three vessels viz., Seamec-I with 1700 DWT, Seamec-II with 2100 DWT, Seamec-III with 2100 DWT but last year it acquired the fourth vessel ‘Seamec Princess’ which is being upgraded and will be ready only by Aug’07. This vessel is quite huge compared to the existing three vessels and will boost its earnings significantly once deployed. All the three MSVs are 1983 make and with no stipulations for any kind of phase out, there won’t be any replacement pressure for at least the next 10 years. Besides, the newly acquired Seamec-Princess is an originally 1984 built vessel, again re-built in 2001 and has a usable life of 15-20 years. With increased activity in the oil & gas sector in India and overseas, the demand for offshore vessels has increased leading to a substantial increase in charter rates. Seamec-1 is deployed with Dolhin Offshore for US$16000 per day, Seamec-II is with Condux SA for approx US$45000 per day and Seamec-III with Offshore Technology West Indies on a similar charter rate. The Seamec-Princess is expected to be deployed at a rate of around US$55000 per day.

Investors, should however, keep in mind that the company has planned to dry-dock Seamec-I during the current quarter and Seamec-II during Sept’08 quarter, which will impact its performance in the coming two quarters. But after that, it is estimated to report bumper results with the deployment of its fourth vessel. In short, CY07 will not be that encouraging also due to the sharp appreciation of the rupee but CY08 will be fabulous. Also in the next three months, the promoters will bring down their stake to 75% from 78% currently as per SEBI guidelines. Importantly, despite being in a capital-intensive industry, SEAMAC is a zero debt company. Secondly, the parent company Technip is learnt to have bagged Rs.1200 cr. order from Reliance Industries, which indirectly augurs well for SEAMEC. Considering all these factors, it may end the financial year ending 31st December 2007 with a revenue of Rs.185 cr. and profit of Rs.50 cr. i.e. EPS of Rs.15 on equity of Rs.33.90. For CY08, the topline can shoot up to Rs.250 cr. whereas bottomline is estimated to be Rs.80 cr, which means an EPS Rs.24 on its current equity. Hence investors are advised to accumulate this scrip in the coming six months with a price target of Rs.320 (70% appreciation) in 15 months.