Buy Global Vectra; target of Rs 334: Emkay

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Buy Global Vectra; target of Rs 334: Emkay

Broking house, Emkay Research is bullish on Global Vectra Helicorp and has recommended buy rating on the stock with a 12-month target of Rs 334.

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Global Vectra BSE | NSE 31/05/12 Are Mutual Funds betting on Global Vectra?

Broking house, Emkay Research is bullish on Global Vectra Helicorp and has recommended buy rating on the stock with a 12-month target of Rs 334.

Emkay Research report on Global Vectra Helicorp:

Import of aircrafts and helicopters made until last year were exempt from all import duties. In the proposed Union Budget for 07-08 presented by the Hon'ble Finance Minister a clause for applying an import duty of 3% plus countervailing duty and additional customs duty on all private import of aircraft including helicopters got introduced. Government and Scheduled Airlines however would continue to avail the exemption for import of aircrafts and helicopters.

As GVHL is engaged in providing non-scheduled air transport services, it is required to obtain the Non-Scheduled Operators Permit from the DGCA. Due to this as per the above budget proposal the company should have come under the purview of applicability of the import tax mentioned above. However, there was a lack of clarity on this aspect and the company was taking expert opinion on the same.

We spoke to the management of GVHL for an update on the status of applicability of import tax on purchase of helicopters made by them:

• Although under the budget proposal import tax shall be applicable to GVHL, it shall avail exemption from import tax under general exemption 122, clause 32 of the Customs Tariff.
• Under the clause general exemption can be availed if:

A. Goods are imported by an Indian Company (herein referred to as a 'contractor') or a sub-contractor of such company, in connection with petroleum operations or coal bed methane operations to be undertaken under a contract signed under the New Exploration Licensing Policy (NELP) on or after 01.04.01 or the Coal Bed Methane Policy (CBMP) as the case may be; and

B. Where the importer is a contractor, he produces to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs at the time of importation a certificate from a duly authorized officer of the Directorate General of Hydro Carbons in the ministry of Petroleum and Natural Gas, Government of India, to the effect that the imported goods are required for such petroleum operations or coal bed methane operations and have been imported under a contract signed under the NELP or CBMP; and

C. Where the importer is a sub-contractor, he produces to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs at the time of importation the following documents :

• A certificate from a duly authorized officer of the Directorate General of Hydro Carbons in the ministry of Petroleum and Natural Gas, Government of India, to the effect that the imported goods are required for such petroleum operations or coal bed methane operations and have been imported under a contract signed under the NELP or CBMP;
• An affidavit to the effect that such sub-contractor is a bona-fide subcontractor of the contractor;
• An undertaking from such contractor, binding on him to pay any duty, fine or penalty that may become payable, if any of the conditions of this notification is not complied with, by such sub-contractor or contractor.

Recommendation

We continue to remain positive on this scrip. Key growth driver for GVHL is its ongoing expansion, increasing its fleet size from 11 in FY06 to 20 in FY07E, 24 in FY08E & to 29 in FY09E. We expect the company to operate at optimum capacity considering the increasing pace of E&P activities in India. We expect the revenues to grow at a CAGR of 50% between FY06-09E and EBIDTA to grow at a CAGR of 73.5% during the same period. At the target price of Rs. 334 the stock shall trade at 13x FY08E and 11x FY09E earnings. With an EPS CAGR of 60.4% estimated over FY06-09E, ROE levels of 33.4% for FY08E and 28.5% for FY09E and an estimated EV/EBIDTA of 6x for FY08E & FY09E we believe present valuation is attractive. Based on our DCF valuation we continue to maintain a BUY on this scrip with a 12- month target price of Rs 334.