Dolphin Offshore: Competition continues to impact business

CRISIL Research has come out with its report on Dolphin Offshore Enterprises (I). The research firm expects company's revenues to increase 84.4 percent in FY13 on account of execution of EPC orders and the company to report adjusted net profits of Rs 276 mn in FY13 and Rs 80 mn in FY14.

Dolphin is an oilfield equipment and services provider. It is an established player in the diving, EPC services and is increasing its presence in marine operations (offshore vessel charter operations). It received two large EPC orders worth Rs 3.2 bn in March 2012 after two dry years. While the company has bid for various projects, it has not received any large EPC orders over past one year. Given Dolphin's dependence on ONGC for order inflows, its lack of technical and infrastructure-related ability to execute greenfield EPC projects, intense competition and stretched working capital cycle, we maintain our fundamental grade of 2/5. Execution of new orders on track
In March-April 2012, Dolphin bagged two large orders: a) Rs 2.7 bn EPC order from ONGC and, b) renewal of Rs 575 mn contract from The Shipping Corporation of India for providing diving services. Dolphin's unexecuted order book as at December 2012-end, stands at Rs 1.4 bn; nearly 35-40 percent of this order book will be executed in Q4FY13 and remaining in H1FY14. Also, in Q2FY13, it has entered into charter arrangement for two of its offshore vessels which will generate revenues of USD 17.6 mn over the next one year. Stiff competition from global players
Slowdown in global E&P business post FY09 and robust investment in the domestic E&P industry attracted a host of international service providers to India. With strong technical capabilities and financial strength, these players bid aggressively resulting in lost opportunities for the company. Dolphin will find it challenging to bag large orders, especially for greenfield projects, wherein the global players enjoy a competitive advantage. In marine operations, it is a small player globally and its ability to deploy vessels on long term charters is a key monitorable. High outstanding receivables stretched liquidity position
Change order work and related disputes have resulted in high amount of receivables leading to a stretched working capital cycle. Receivables worth Rs 321 mn (about 13 percent of FY12 net worth) are outstanding for over two years. Revenues and PAT to improve in FY13; but visibility on FY14 is low
CRISIL Research expects Dolphin's revenues to increase 84.4 percent in FY13 on account of execution of EPC orders. We have low visibility on FY14 revenues. Our FY14 estimates factor in Rs 2.0 bn of new EPC order inflow and revenues of Rs 2.6 bn. We expect the company to report adjusted net profits of Rs 276 mn in FY13 and Rs 80 mn in FY14. Rolled forward our valuation to Rs 104 per share
We continue to use the price-to-book value multiple approach to value Dolphin. We apply 0.7x multiple on FY14 adjusted book value (adjusted for debtors outstanding for over two years). We roll forward to FY14 to arrive at fair value of Rs 104 per share. Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose. CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"

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