CRISIL maintains Dolphin Offshore`s fair value to Rs 100

Dolphin Offshore Enterprises (India) Ltd’s (Dolphin’s) Q1FY13 results were broadly in line with CRISIL Research’s expectations. Standalone revenues (from the marine and EPC segments) de-grew by 13% y-o-y (up 7.5% q-o-q) to Rs 604 mn. EBITDA margin declined by 961 bps y-o-y (down 1,095 bps q-o-q) to 11.7% on account of higher raw material and employee expenses. Standalone PAT de-grew by ~82% y-o-y and 81% q-o-q to Rs 12 mn. While standalone revenues declined, consolidated revenues increased by 10% y-o-y (up 49% q-o-q) to Rs 841 mn on account of chartering of recently-acquired vessels under its subsidiary, Dolphin Offshore Enterprises (Mauritius). Consolidated adjusted PAT decreased by 60% y-o-y to Rs 27 mn; however, it was an improvement from the loss of Rs 12 mn reported in Q4FY12. While the company’s order book in the EPC segment continues to give one year revenue visibility, its ability to bag new orders remains a key monitorable. We maintain the fundamental grade of 2/5, indicating that its fundamentals are moderate relative to other listed securities in India.

Exceptional incomes resulted in higher reported profits
While adjusted consolidated profits were in line, reported consolidated profits were above expectations owing to exceptional income of ~ Rs 80 mn. This exceptional income is primarily due to the foreign currency translation gain of ~ Rs 70 mn (following the rupee depreciation) on loan taken by the Mauritius subsidiary. However, Crisil Research expects rupee to appreciate from the current levels of Rs 55-56 to Rs 53 by the year end and some part of this gain to reverse. Another subsidiary, Dolphin Offshore Shipping, gained~ Rs 10 mn from the sale of property. Consolidated reported PAT increased by 60% y-o-y to Rs 107 mn (from a loss of Rs 12 mn in Q4FY12).

Lower profitability expected in Q2; to recover in H2
Because of slowdown in the execution of EPC contracts during the monsoon, we expect lower utilisation of the vessels and hence lower charter income for the subsidiaries. However, there are fixed costs even when these vessels are lying idle, which may result in operating loss at the subsidiary level.

Unexecuted order book as on June 30, 2012 is Rs 3,060 mn of which ~60-65% is expected to be executed in H2 FY13; this will result in operating efficiencies and higher profitability in H2.

Maintain earnings estimate and fair value of Rs 100
We maintain our FY13 revenue and profitability estimate. However, we have increased our reported PAT estimate by ~23% to Rs 275 mn to factor in the exceptional income. We continue to use the price to book method to value Dolphin and maintain the fair value at Rs 100 per share. At the current market price of Rs 78, the valuation grade is 5/5.

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