Seamec Ltd, a service provider of Diving Support Vessels (DSV), 75% owned by a Technip SA (french company with Euro 8 bi revenues, 36000 employees involved in the project management, engineering and construction of energy sector installations) has seen a huge spurt in volumes today (19/3/2014) and has hit the upper circuit. I have been curious about this company for a long time and was waiting for a trigger before entering the script. Today`s spurt in volumes seems to be the tipping point.
THE BUSINESS
The company owns and operates 5 vessels which are chartered by big oil companies who in-turn use them for a variety of offshore activities. The company had a golden year in 2009-10 (at the height of the oil boom) during which revenues reached Rs 425 Crs and PAT reached Rs 208 Crs. In the next 2 years, the company recorded losses of Rs 64 Crs and Rs 6 Crs. It was only in 2012-13 that the company got back into the green and was able to record Rs 34 Crs of PAT (on revenues of Rs 360 Crs). The company currently holds Rs 100 Crs of cash and is debt free.
MANAGEMENT
75% of the company is held by Coflexip Stena Offshore (Mauritius), which in-turn is a subsidiary of Technip SA. Seamec has paid out Rs 2 Crs and Rs 3.5 Crs as Management fees to the parent company for FY 13 and 12. Managing Director Christopher J Rodricks has been with the company since 2003 and takes home a salary of Rs 2.6 Crs (since this amount is in excess of the allowable limit, the company has taken this issue to the Ministry of Corporate Affairs and Government of India).
THE TRIGGERS
http://www.moneycontrol.com/news/stocks-views/see-20-upsideseamec-this-week-sp-tulsian_1040643.html
Mr Tulsian has been tracking the company for quite sometime and has mentioned in the above link that the promoters are looking to sell stake. Although I am unable to get any original weblinks which prove this (promoters wanting to sell stake), the above is just one of the factors that is pushing me to buy and recommend this stock.
The company has made a healthy profit of Rs 30 Crs in Dec 2013, but for the nine months of 2013-14, the company is still in the red by Rs (29) Crs.
The Managing Director seems mildly optimistic that vessel utilization will continue to remain healthy for Q4 2013-14. If we can take this optimism at face value, then we may expect the company to breakeven (no profit no loss) in 2013-14.
http://www.thestatesman.net/news/45154-goldman-upgrades-equities.html
Enter Goldman. Is this one of the triggers? Maybe. Goldman mentions being overweight on Energy stocks, ONGC and cyclicals. Seamec`s vessels are sub-contracted by ONGC and Seamec`s earnings are very lumpy (read cyclical).
FII`s, as of date, are very bullish on the Indian markets (which I find to be irrational and overoptimistic). Seamec is a Zero debt company with a strong promoter profile (multinational giant). As of March 2013, FII`s only held 2.12% of Seamec. If only Seamec`s earnings were better, the company would be trading at substantially better valuations.
DO THE DOTS CONNECT. AM I GETTING THE BIG PICTURE RIGHT ?
Frankly, I don`t know. All I know is that Seamec is not a stock for the faint hearted. Other than the issue with earnings for FY 2013-14, the company is sitting on a landmine of contingent liabilities (Rs 10 Crs of foreign exchange regulation act [FEMA] and Rs 120 Crs of Custom duty payable, although the company vehemently denies both these allegations). Also, seeing the recent trends in the corporate governance standards of the subsidiaries of multinational companies (see Maruti Suzuki and the controversy surrounding the Gujarat plant/the amalgamation of loss making companies by Akzo Nobel India which helped the company`s multinational promoters increase stake by 1000 basis points), it is hard to believe that Technip will not do something similar in the near future. Although MNC`s love to brag about the standards of corporate governance in their respective countries, when it comes to operating in India, their ethics and morality go for a toss.
DIVIDEND PAYOUT
The company paid Rs 3/share of dividend in July 2010 (that has been the only instance of dividend payout in the last 10 years. It looks like Technip, the parent company, is so large that dividends from its Indian subsidiary make no difference to it)
DISCLOSURE – I will mostly be purchasing this stock at Rs 90/share.
Snippets from Annual Report
1) For the period Jan to March 2010, the company withdrew one of its from charter hire due to commercial dispute. Due to this, revenue worth Rs 28 Crs has not been realized and Rs 24 Crs of provisions have been recognized on trade receivables from the same client.
thepokaranmoneymanager 