Sweet spot for increased coastal activity...

Transcription

1 Management Meet Note Rating Matrix Rating : Unrated Target : NA Target Period : NA Potential Upside : NA Key Financials ( Crore) FY11 FY12 FY13 FY14 Net Sales EBITDA Net Profit EPS ( ) Valuation Summary (x) FY11 FY12 FY13 FY14 P/E EV / EBITDA P/BV RoNW (%) RoCE (%) Stock Data Particular Amount Market Capitalization 1011 crore Total Debt (FY14) 1257 crore Cash (FY14) 57 crore EV 2212 crore 52 week H/L ( ) 567 / 286 Equity capital 2.8 crore Face value 10 FII Holding (%) 0.6 DII Holding (%) 9.8 Price Performance Return (%) 1M 3M 6M 12M Dredging Corpn. (5.3) (6.0) (18.0) 23.6 Mercator (0.6) (18.0) (40.7) (46.7) S C I (0.6) (16.2) (20.7) 13.9 Price Movement 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Apr12 Research Analyst Nov12 Jun13 Price (R.H.S) Bharat chhoda bharat.chhoda@icicisecurities.com Jan14 Ankit Panchmatia ankit.panchmatia@icicisecurities.com Sep14 Nifty (L.H.S) May15 May 7, 2015 Dredging Corporation of India (DRECOR) Sweet spot for increased coastal activity... We recently met the management of Dredging Corporation of India (DCI), to get an insight into the various initiatives taken by the government to promote shipping and coastal activities in India and DCI s role in the entire development and maintenance value chain. With 12 suction hopper dredgers, DCI has ~60% market share in maintenance dredging. However, majority of the capital dredging is carried out by international players in which the company has ~2% market share. DCI s revenue and operating profit grew at a CAGR of 4.5% and 18.5%, respectively, in With the central government s biggest infrastructure projects centred on coastal development, we believe DCI would benefit from the same. Port development, capacity expansion to free up demand for dredging India has a coastline of ~7000 km, with 200 ports (12major, 180nonmajor) and carries 90% of the country s trade volumes. Further, only 7% of domestic cargo is transported by coastal shipping vs. 20% and 42% in China and Japan, respectively. While there is a need to supplement the choked road and rail network, transportation through waterways is also considered as cost effective and energy efficient mode of transport. Projects like Sagar Mala, Jal Marg Vikas, etc. will create higher demand for port creation and port development activities. With a fleet size of 16 dredgers and annual capacity of 80 million cubic metre (mcm), we believe DCI would be best suited domestic player for the dredging activities. Maintenance dredging to lead to higher earnings The annual domestic maintenance requirement is 110 mcm out of which ~65 mcm is carried out by DCI. Due to the natural deposition of mud on a regular basis, Kolkata and Haldia ports require continuous dredging, which contributes 50% of total revenues of DCI. Further, it helps to maintain desired depths in shipping channels of major and minor ports. DCI has added three new maintenance dredgers since 2012, which derive higher day rates compared to older fleet. New port development and Clean Ganga project will create additional demand for maintenance activities. On the back of enhanced capacity and higher realisation, we believe maintenance dredging will bolster future revenues. Subdued past performance, increased prospects, quality play!!! In FY15, the company had three dredgers in dry dock, out of which one had highest capacity of 7400 mcm. Moreover, investments in Sethusamudram project worth crore were stalled due to environment and political issues, resulting in a subdued FY15. With the company now exploring the export market, addition of fleet from proceeds of Sethusamudram and renewed management focus position DCI as a quality play. Exhibit 1: Financial Performance ( Crore) FY10 FY11 FY12 FY13 FY14 9MFY15 Net Sales ( crore) EBITDA ( crore) Net Profit ( crore) EPS ( ) P/E (x) NA Price / Book (x) NA EV/EBITDA (x) NA RoCE (%) NA RoE (%) NA RoIC (%) NA 361 ICICI Securities Ltd Retail Equity Research

2 Key financials Revenues at DCI have grown at 4.5% CAGR in FY1014 to 770 crore in FY14 ( 645 crore in FY10). For 9MFY15, revenues declined 4.3% YoY to 544 crore, which was primarily on the back of lower utilisation of fleet due to dry docking and subdued dredging demand. Exhibit 2: Revenue grows at 16.0% CAGR in FY1014 Revenues increased at 26% CAGR in This was on the back of three dredgers added, which are realising higher day rates compared to older vessels crore MFY14: 569 crore 544 FY10 FY11 FY12 FY13 FY14 9MFY15 Exhibit 3: Fleet profile In the past 30 years, DCI has been catering to dredging requirements for Haldia/Kolkata port. As of FY14, maintenance dredging is the main revenue contributor. Further, all of the revenue came from the domestic market of which ~55% was from Kolkata port. Name of the Craft Year of Built Hopper Capacity (cu.m) Pumping capacity (cu.m/hr) Trailer suction Hopper Dredger (TSHD) DCI Dredge VI DCI Dredge VIII DCI Dredge IX DCI Dredge XI DCI Dredge XII DCI Dredge XIV DCI Dredge XV DCI Dredge XVI DCI Dredge XVII DCI Dredge XIX DCI Dredge XX DCI Dredge XXI Cutter suction Hopper Dredger (CSD) DCI Dredge VII DCI Dredge Aquarius DCI DredgeXVIII Back Hoe Dredger DCI DredgeBH Since 1991 to 1999, no dredger was added to the fleet of DCI. Further, the average fleet age of the company is more than 30 years as it still operates the fleet acquired in 1975 and The company intends to continue operating both fleet, following refurbishment. It is also planning a refurbishment schedule for its middleage vessels having an average age of 15 years. This will help the company to increase the life of the same by an additional 10 years. Further, the company has proposals to purchase two higher capacity dredgers. ICICI Securities Ltd Retail Equity Research Page 2

3 Exhibit 4: Capacity utilisation trend At any point in a year, two or three vessels are in dry docking. Further, as they are older, the vessels are compulsorily kept idle at the end of every month. Thus, tentatively, a vessel works for only ~250 days. FY13 Actual v/s Expected No.of Days Quantity (mn cu.m) No.of Days Quantity (Lakh Cu.M) Target Actual % Utilisation 83% 91% 88% 80% The new vessels added over are realising a daily rate of approximately 4 million per day, compared to older vessels that are realising approximately 2.5 million per day. Furthermore, the new vessels are fuel efficient following which, the EBITDA increased at 41% CAGR in FY1214 with a margin expansion of 500 bps to 24.2%. FY14 Exhibit 5: EBITDA & EBITDA margins trend Exhibit 6: RoCE, RoE & RoIC trend crore FY10 FY11 FY12 FY13 FY14 9MFY % % FY10 FY11 FY12 FY13 FY14 EBITDA ( crore) EBITDA Margin (%) RoCE (%) RoE (%) RoIC (%) Exhibit 7: PAT trend over FY10 9MFY15 crore MFY14: 35 crore FY10 FY11 FY12 FY13 FY14 9MFY15 22 PAT for 9MFY15 degrew 38% YoY to 22 crore, compared to the same period in the previous year. This was on account of lower utilisation levels coupled with an increase in interest expenses from 7 crore to 20 crore over the same period. ICICI Securities Ltd Retail Equity Research Page 3

4 Exhibit 8: Product profile TRAILING SUCTION HOPPER DREDGER (TSHD) TSHDs or hoppers are selfpropelled ships that contain a hopper or hold inside their hulls. They are primarily used for dredging loose material such as sand, clay or gravel. The suction pipes are lowered underwater and the drag heads are dragged over the seabed, sucking up material as the ship slowly moves forward TSHDs are used on a wide variety of maritime construction and maintenance projects. These range from maintenance dredging of ports and access channels to remove sand to bring them to necessary depths to capital dredging projects such as giant land reclamation projects that require millions of cubic metres of sand. CUTTER SUCTION DREDGER (CSD) CSDs have the ability to dredge nearly all kinds of soils (sand, clay, rock) and are used where the ground is too hard for trailing suction hopper dredgers. All CSDs are equipped with a rotating cutter head, which is able to cut hard soil or rock into fragments. The cutter head is a rotating mechanical device, mounted in front of the suction head and rotating along the axis of the suction pipe. CSDs can be used for land reclamation, for deepening harbours and for the construction and expansion of ports and navigational channels or for pipeline trenching in the seabed. When the dredged material is being used for land reclamation, the distance between the dredging and disposal areas is usually shorter than the distances covered by trailing suction hopper dredgers. BACKHOE DREDGER (BHD) A backhoe is a hydraulic excavator with a single digging bucket positioned on the end of a twopart articulated arm. Landbased backhoes are typically mounted on the back of a tractor or front loader that has an undercarriage with wheels or with tracks. A backhoe dredger (BHD) is waterbased excavator that evolved from the landbased backhoe. Small BHDs are often track mounted and thenwork from the banks of ditches especially when being used in harbours or other shallow waters. They can be used in access channels and harbours along quay walls that are difficult to reach. They may be used for dredging relatively small quantities of material that are at varying depths. They are often used for bulk dredging of a variety of sediments. ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 9: Past assignments Major maintenance dredging assignment executed Major maintenance dredging assignments executed Sr. No. Client Work done during the years Value of work (3 yrs average) crs 1 Kolkata Port Trust, Kolkata , , , , , & , , , & Cochin Port Trust, Cochin , , , & Visakhapatnam Port Trust, Visakhapatnam , , , , , , , , & Karwar Port Trust, Karwar Indian Navy, Kochi , & , , , , & Mormugao Port Trust Goa , , , , , & New Mangalore Port Trust, Mangalore & , , , , , & Paradip Port Trust, Paradip , , , , , , & Jawaharlal Nehru Port Trust, Mumbai , , , , & Kandla Port Trust, Kandla , , & Mumbai Port Trust, Mumbai & Chennai Port, Chennai Indian Navy, Mumbai , , & Past Capital Dredging Assignments Executed Sr. No. Client Work done during the years Value of work crs 1 Essar, Hazira & Mormugao Port Trust, Mormugao Kolkata Port Trust, Kolkota Cochin Port Trust, Kochi Kakinada Port, Kakinada Jawaharlal Nehru Port Trust, Mumbai New Mangalore Port Trust, Mangalore Bharat Petrolium Corporation, JNPT, Mumbai Visakhapatnam Port Trust, Visakhapatnam Taichung Harbour, Taichung, Taiwan Bahrain & Mormugao Port Trust Paradip Port Trust to Present Commitments Sr. No. Port Period Value of Work (approx) Rs. In Crores 1 KOLKATA PORT TRUST Maintenance Dredging in the approach channels of Haldia and Kolkata from Years 358 / per year KOLKATA PORT TRUST Maintenance Dredging of HOJ in the vicinity of Haldia Oil Jetties(HOJ's) including adjoining water ways of HDC from COCHIN PORT TRUST Maintenance of Channels and Basins at Cochin Port for three years from VISAKHAPATNAM PORT TRUST Annual Maintenance Dredging in NST and its approaches and other areas from KANDLA PORT TRUST Dredging in the Navigational Channel of Kandla Port Trust from Jan' Years 17 / per year 3 Years Years 6 / per year 2 Years ICICI Securities Ltd Retail Equity Research Page 5

6 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/10%; Sell: 10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 6

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