Buyout adds Rs 100 cr to topline, profit margins 30%
MUMBAI: Great Offshore Ltd has acquired two companies in an all-cash deal for Rs 160 crore, to extend its offerings in the offshore space and foray into port management.
The acquisition of 100% equity in KEI-RSOS Maritime Ltd and Rajamahendri Shipping & Oilfield Services Ltd based at Rajahmundry and Hyderabad, respectively, which are part of the same promoter group, provides Great Offshore an entry into port management and single-mooring services, besides expanding its offshore offerings.
The two companies will operate as subsidiaries, and will be run by their existing management.
The acquisition also gives Great Offshore a strong presence on the East coast of India, where KEI and Rajamahendri have operations.
The aggregate revenue for the acquired companies is expected to be close to Rs 100 crore this fiscal with a profit margin of 30%.
Great Offshore said the acquisition is earnings per share (EPS)-accretive, but no figures were disclosed.
Vijay K Sheth, vice chairman-cum-managing director of Great Offshore, in a statement said acquiring an existing running business is with a view to broadbase earnings without diversifying core business risks and ensuring sustainable cash flows and earnings.
“We are adding one more business to our company, which also gives us a strong presence on the East Coast, where we have many of our customers,” said a company spokesperson.
“Infrastructure projects have longer-term contracts and customers —- ports in this case —- also look at companies with strong asset base,” he said.
With a diverse fleet of 19 assets (9 offshore support vessels and 10 harbour tugs), apart from 4 specialised vessels on order, KEI and Rajamahendri add to Great Offshore’s fleet of 40 vessels.
Besides, all assets of the acquired entities, including new builds have already been contracted, which ensures revenue visibility for the company.
KEI has also been awarded a contract for providing comprehensive marine operations services for the Gangavaram Port, for a period of 12 years commencing July 2008.
The port project and the newer vessels that are expected to join the fleet by March 2009 would start contributing to the company’s revenue from FY10, giving an upside.
Citi , “The deal appears positive with ~4-5 years payback and should be accretive from year 1 given all vessels are already contracted out.”
An analyst with a Mumbai-based brokerage who did not wished to be named said that the operating margins of the acquired companies would be 40-50% or more, making it profitable for Great Offshore. Also, the fleet expansion would ideally lead to increase in revenues.
The global offshore industry is currently on a cyclical uptrend driven mainly by the prospects of deep water operations and the shallow-water replacement market.
Companies operating in this segment are increasingly looking to move up the value chain and here analysts feel that Great Offshore, with a well-timed expansion, looks in pole position to capitalise on the global offshore demand.
Rachna Kothari, an analyst with LKP Shares and Securities said, “This is a logical expansion for Great Offshore, which is now one more step closer to providing the complete gamut of offshore services.”
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