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Overall, Castrol’s revenues and profits are seen growing at 10-15 per cent annually over the next two years. At Rs 258.70, the stock trades at 12 times its CY09 (December ending) estimated earnings and can deliver 18-20 per cent in a year.
Great Offshore
Great Offshores’ share price has corrected almost 66 per cent from its high of Rs 1,149 in January 2008, thereby available at a decent dividend yield of 4.11 per cent.
While the company has grown at a rapid pace in the past (sales at Rs 676.31 crore has doubled in last two years) and continuously paying dividends (up from 51 per cent in FY06 to 160 per cent in FY08), going forward, it is expected to maintain revenue growth on the back of firm oil prices and the resultant increase in offshore exploration and production (E&P) activities in the domestic and global markets.
The higher E&P investments will not only improve volumes, but will also increase realisation for companies, thanks to the shortage of offshore services.
Great Offshore, which owns about 40 different types of vessels including rigs, platform support vessels (PSV), anchor handling tug supply vessels (AHTSV), multi support vessels is well placed to tap this opportunity. Besides, the company has also placed orders for a jack-up rig and a MSV (multi support vessels), which are expected to be delivered by May 2009.
With these fleet additions, the company can generate additional revenue of about Rs 300 crore in FY10, on the basis of prevailing rates. This reflects a 40 per cent increase over its FY08 revenue of Rs 745 crore.
Additionally, the company is also looking at inorganic growth by way of acquisition of semi-submersible deep water rig, marking its entry into the deep water drilling segment.
These factors will not only add to the revenues, but will also improve cash flow (cash profit margins of about 44 per cent), and thus a reason for higher dividends in future.
Notably, at current price, the stock is trading at attractive levels of 8 times and 5 times its estimated FY09 and FY10 earnings, respectively.
HPCL
For HPCL, it has a long track record of paying dividends, except in 2005-06, when it gave a dividend of just Rs 3 per share.
For the time being, for OMCs (Oil marketing companies) some respite has also come in form of crude oil prices falling to below $125 a barrel. If the trend continues, the under-recoveries (subsidy) for OMCs should also decline.
The funding facility to OMCs, wherein they can sell oil bonds to RBI in return for cash, is also positive and will help lower debt levels and interest expenses for these companies. For HPCL, it held bonds in excess of Rs 6,000 crore in FY07, while loans were at Rs 10,500 crore.
In terms of business prospects, the firm trend in global refining margins augurs well for HPCL (refining capacity of 13 million tonnes per annum). These, along with a 25 per cent increase in refining capacity, should enhance refining profits.
The company’s 10-20 per cent stakes |
