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 offlate it has acquired fourth vessel ‘Seamec Princess’ which has been upgraded and deployed to work from March 2008 only. This vessel is quite huge and technically more advanced compared to the existing three vessels. Hence it has been hired at charter rate of whopping US$ 105,555 per day by M/s Sime Darby Engineering, Qatar for nine months. After that it would be deployed with M/s. Workboat International FZCO, Dubai towards early Decemebr at a charter rate of US$ 68,333 per day. In short this vessel will give a strong fillip to company’s revenue as well as earning this fiscal. Notably, its SEAMEC-I is deployed with Dolphin offshore at charter rate of around @ US$ 23,333 per day and SEAMEC-III is hired by M/S Superior Offshore @ US$ 55,555 per day. Meanwhile its SEAMEC-II is under statutory dry dock at Curacao dry dock yard, Netherland Antilles since September 2007 and is expected to get ready by mid of this year. With prices of crude oil rising higher, exploration activity has increased manifold across the globe Now it has become profitable to extract oil reserves from deep undersea deposits as well. There has also been a spurt in undersea pipe laying to reduce transportation costs of oil & gas. All these factors have lead to a sharp increase in the charter rates for MSV’s.
Importantly, despite being in a capital-intensive industry, this MNC is a debt free company. To derisk its business model company is contemplating to bid for exploration and pipe laying engineering contracts on its own going forward. Financially, CY07 was not as good as most of vessels were under dry dock and company had to bear the dry docking expense. But CY08 will be pretty good because it will report bumper result for second half as all its four vessels will be deployed by then. Accordingly it is estimated to report total revenue of Rs 250 cr and PAT of Rs 75 cr for FY08 ending Dec 2008. This translates into EPS of Rs 22 on equity of Rs 33.90 cr. That means scrip is currently available at a P/E ratio of merely 7x times. Although company is operating in a cyclical industry, still it deserves much better valuation and is bound to get re-rated on announcement of its June qtr nos. Ironically share price has crashed 50% from the recent high of Rs 305 Rs and is not available at an enterprise value of merely Rs 500 cr. Investors are strongly recommended to buy at current levels as share price can shoot up to Rs 350 within a year considering a rational discounting by 16x times against FY08 earnings.
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