Seamec: Missed the opportunity to invest in this multibagger stock? Ventura sees more upside

Imagine a stock that you invested in just a few years ago, and it has more than tripled your wealth. Isn’t that an incredible feeling? It’s the dream scenario for any investor—to find a hidden gem that turns out to be a multi-bagger, delivering exceptional returns beyond expectations.

Currently, shareholders of Seamec are experiencing the same amount of joy as the stock in less than five years has more than tripled investors’ wealth. The stock, which was trading at around ₹270 apiece in March 2020, has skyrocketed 310% to trade at the current level of ₹1,105 apiece.

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Going forward, the stock is expected to maintain its positive momentum as per the projections made by the domestic brokerage firm Ventura Securities. In its latest note, the brokerage has initiated coverage on the stock with a ‘buy’ rating and set the target price of ₹1,576 apiece, indicating an upside potential of 42.6% from the stock’s most recent closing price.

Additionally, under the bull case scenario, the brokerage assigns a higher target price of ₹1,817, while under the base case scenario, it sets a target price of ₹1,210 apiece.

About Seamec

Seamec specialises in providing diving support services to the offshore oil and gas industry. The company offers a range of specialised services, including inspection, maintenance, repairs, and the operation of remotely operated vehicles.

Seamec has established enduring contracts with esteemed clients such as ONGC and L&T Hydrocarbon. Additionally, in the domain of freight transportation, the company manages three bulk carriers dedicated to transporting food staples, commodities, and industrial products.

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The company is a formidable player in offshore shipping, backed by India’s largest fleet of multi-support vessels.

The brokerage’s bullish outlook on the company stems from the following key factors:

Strong revenue visibility

Seamec owns and operates a fleet of five diving support vessels (DSV) dedicated to facilitating intricate subsea operations. The company secures long-term contracts ranging from 3 to 5 years with clients, ensuring a high level of business predictability. Seamec has prudently considered factors such as inflation and cost escalation while bidding for contracts, as there are no incremental clauses in the agreements.

Capacity expansion and rationalisation of assets would improve the business

The company faces the necessity of replacing its vessels upon reaching the end of their useful life. Seamec II and Seamec III, procured in 1993 with a useful life of 30 years, are slated for replacement. Two new offshore support vessels (OSV) are expected to be added in Q4FY24E and Q1FY25E, incurring a projected capital expenditure ranging from ₹1.15 billion to ₹1.3 billion with an estimated payback period of 5–6 years.

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The scrapping of Seamec III is scheduled for FY25, while Seamec II is expected to be scrapped in Q4FY26E. The replacement vessels are anticipated to command higher charter rates, positively impacting the company’s top line in the future. This strategic asset replacement not only reduces the average life of assets but also enhances operational efficiency.

Competitive advantage

The company has better technical expertise in IMR, ROV operations, Subsea construction, pollution control, firefighting, and rescue operations compared to competitors in Indian offshore oilfields. During monsoon and dry-dock periods, vessels aren’t able to operate for servicing to the customers. Seamec has better cost control measures, which came from decades of experience, compared to international competitors.

Volatility in crude oil prices won’t impact Seamec’s business

Seamec provides service and maintenance for offshore oilfield players such as ONGC, L&T, and others. While the fluctuation in crude oil prices may affect Seamec’s customers, the company has safeguarded itself through long-term contracts with fixed pricing with automatic pass-through of cost.

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Taxation advantage

Seamec’s taxation is based on a scheme under Chapter XII G of the Income Tax Act, of 1961. The scheme provides taxation of the business income based on vessels that are under the tonnage tax scheme. So, the company taxation is less than the general taxation in India. As a result, the taxation for SEAMEC during FY24–26 is expected to remain below 12% of PBT.

Financial Outlook

Ventura anticipates Seamec’s revenue, EBITDA, and PAT to surge at a CAGR of 24%, 48%, and 81%, respectively, over FY23–26, reaching ₹825 crore, ₹417 crore, and ₹201 crore. Moreover, EBITDA and PAT margins are forecast to increase by 2150 bps and 670 bps to 50.5% and 24.2%, respectively. Consequently, return ratios like RoE and RoIC are poised to improve by 1160 bps to 15.8% and 1780 bps to 19.7%, respectively, by FY26E.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.