Duke Offshore - Hidden Gem?

Stock Opportunities Untested - but worth a good look
1

Duke Offshore

CMP: 48.85
Market Cap: 24.08Cr
Book Value: 27.18
PE: 6.30
ROCE: 40.82%
ROCE 3yr Avg. : 43.6%
Profit Growth 3 Years: 47.6%
Profit Growth Last Year : 49.32%
D/E : 0.09
Contingent Liabilities: 0.26 Cr
Promoter Holding: 70.6%
ROE 3 Years: 34.86%

DUKE OFFSHORE LIMITED is headquartered in Mumbai and is managed by a group of oil field and marine professionals.
Specialising in hook up and commissioning of offshore oil field platforms, their maintenance, modification and inspection services.

The Diving Division provides a dedicated underwater platform inspection, maintenance and repair (IMR) program for oil companies. In addition diving services are provided for drill rig support, SBM and SPM installation, operations and maintenance.

The Offshore vessel and Marine Management Division provides offshore support vessels like supply vessels, crew boats and hook up/ accommodation barges globally.

The Special Force Protection Division (SFPD) has been created to provide offshore patrol vessels to the oil fields and other offshore installations for security and protection.
Starting FY13 Company has increased its focus on the security and protection division. Company has purchased FIC (fast interceptor crafts) for this purpose. The company has also started to focus on defence services and has received contract from ministry of defence for maintenance of 4 vessels. With the Government’s increasing focus on building naval capabilities and management’s liaising capabilities I feel that the company is in a sweet spot to bag more such contracts. The management constitutes of people who have been part of MARCOS (special division of Indian Navy) and have worked closely with US Navy fleets.
Prior to FY 13 company focused mainly on offshore oil field maintenance and drilling support services and faced a threat due to oil price fluctuations as mentioned in ARs of FY11 and FY 12. FY 13 onwards this threat hasn’t been highlighted.
The numbers have also been really good so far. The company is also paying tax at healthy rate and has started paying out dividend. The Management is focused on expansion by purchasing boats and is confident about the growth.
The earnings might be lumpy.
Would like fellow members to pitch in with their views.

Disclosure: Invested & Biased. Please do your own due diligence

Regards
Sri Krishna Bhutra

2 Likes
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How is the promoter n business quality? how r the co performing in terms of checklist prescribed here like moat,opp size,predictability,sustainability,ability to allocate large capital at ROCE? Any competition?Can this Maruti become a Mercedes?

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Since the company is in ultra micro-cap segment much information is not available in public. AGM was held yesterday but due to other priorities wan’t possible to attend it. Tone of the management as per the AR looks positive.
Management has also started giving dividend since last 3 years or so and has been increasing the dividend %.
If we look at the page 5 of the latest AR, in the "state of company’s affair"section- 3rd para management says that their core business is coastal surveillance and transportation of man and materials through waterways and this IMHO is more immune to oil price fluctuations. Also the management in the last three years has been purchasing new vessels and the same has been mentioned in the latest AR that they are looking to buy more new vessels. SInce it is a services business I feel the margins might be sustainable, will have to watch out for that.
Opportunity size is definitely huge as India progresses to protect it Offshore assets from piracy, etc

4

Adding to the findings. Generally oil firms hire patrol vessels for their offshore assets on long term lease. Also couldn’t find any competitor who offers patrol services instead of leasing boats. So market opportunity is good.

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In small cos generally we bet on Jockey driving the co.

Who and how good is the Jockey Avik in Duke? does he has the growth mindset?Whats been the track record,his educational qualifications?
Is the growth mindset there? Whats the moat for the co?

Heard for first time that AGM got adjourned due to lack of quorum ie atleast 15 SH shud be present.V strange.Do u know any body who attended the AGM?

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Mr. Avik G. Duke has been the Managing Director of Duke Offshore Limited since April 12, 2010. Mr. Duke serves as the Chairman of Duke Offshore Limited and has been its Whole Time Director since July 27, 2009. He joined the company in 2008 as an additional director and in 2009 the shareholders wanted him to become whole time director. Prior to this he was VP marketing at Chateau D’Óri a winery based out of Pune. Since the time Avik joined Duke the company turned around and has been making profits before which the company was making losses.
Avik had remuneration of 1.5 lac p.m. in 2009 which now stand at 2.25lac p.m. albeit nearly 10% of the total profit for the year. But, his father George who was MD in 2009 had remuneration of 3.00 lac p.m. Thus, induction of Avik has trimmed down those costs now.

The turn around was marked in the year 2008 even though the global economy was going through slowdown.

So, we can see that Avik is upto something big and hopefully it materializes.

Couldn’t find Avik’s educational qualifications.
Adjournment of AGM appeared strange. I don’t know anybody who attended the AGM

Regards

Krishna

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Pasted image1366Ă—736 178 KB

Thank you so much sri krishna for your detailed analysis.

I would like to point out that salary drawn by Avik Duke is around 3570000 for FY 14-15 according to screenshot above which comes around 2,97,500.

It mentioned that major part of salary is due to profits .Does this mean around 5,00,000 rupees is his bonus for this year?

Results look decent and government is focussing more on naval surveilance after 26/11

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Yes the rest was variable, depending upon the company performance that’s why I mentioned 10% of the FY15 PAT.
In the mean time have been trying to have a conversation with the management to know more about their vision.

Regards
Krishna

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I attended the AGM on Monday. As there were only 3-4 shareholders present, it was more like a one to one with the CMD, Mr. Avik Duke. The Co. should see steady growth year on year as the base is relatively small. The growth going forward will come from the acquisition of the second OPV (Offshore Petrol Vessel) which the Co. plans to lease to Cairn India. This should happen around December / Jan. The first one is under contract with British Gas.
In addition the Co. owns about 10-12 FIC’s (Fast Intercept Crafts) which have been leased to the Navy to patrol around the harbour area. The other revenue source is the maintenance of these & other FIC’s & OPV’s.

The business will always be needing funds to grow. My reading is that the mgt is looking to raise money in due course to grow, but will look to dilute only at premium valuations. All efforts seem to be in that direction. It’s 3 year vision is to have a base overseas where business opportunities are much more.

On the whole, the mgt. seemed genuine & capable of scaling up the business. The investment in the Co. to my mind has the potential to reward handsomely over the next couple of years.

Disc: Invested

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Where is the moat in the business of buying and leasing out patrol boats. Seems a relatively simple business with little entry barriers.
Also maintenance of boats is not a specialized job. Maintenance of platforms - this also would be tender based i guess.
In all likelihood the govt / navy projects will be awarded on tender basis.
However, the stock seems to be quoting at good valuations.

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Hi Rajeev Ji,

Thanks for your note on the company. Can you provide us with few pointers on:

  1. Competitors, if any
  2. Is the Management ok with debt funding?
  3. Personality of Mr. Avik Duke
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Hi Sri,

I feel the Co. has a niche in the sense that the work it’s doing will not interest the big boys. What stood out was that the mgt was fixated about costs. Small things like calling the AGM in the office, which itself is not fancy, located in a residential bldg. CMD himself highlighted that the Co. did not employ any peons & they all made their own coffee! You could of course argue that this is not a mantra for success, n you may be right. This mind set however comes in handy when it comes to bigger decisions like buying the new OPV. Apparently there are lots of vessels for sale floating around, but the mgt is looking for a distress seller. The first OPV had a payback of only two years!

However, this is not a Co. to be reviewed every qtr. There is an element of seasonality in the business. If one is looking to make a fast buck, then perhaps this Co. is not the one. I feel that with a bit of luck, this is one investment that could stand out provided one is willing to be a little patient.

6 Likes
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Hi All,

The trade receivables as a percentage of revenue have gone up from 8.2% to 23.4%. What can be the reason for this?

The accountants have made a mistake while calculating the cash flow from operations- adjustments for trade and other receivables (See page 33 of the Annual Report’15). These must be subtracted and not added as the receivables have increased compared to the previous year. Can we overlook this mistake as a one off error?

Disc: Not invested

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@pratyushmittal: Do you have 5% holding in Duke offshore as shown in shareholding pattern against Pratyush Mittal?

1 Like
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Its actually an error in bse india. Check the shareholding pattern released by the company. Pratyush Mittal holds 1.02% stake http://www.bseindia.com/xml-data/corpfiling/AttachHis/02F26CD0_2AEE_4EAD_9552_FB5A8F455873_102515.pdf

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Thanks for rectification and clarification.

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I also have investment here. Not very sure of moat and its competitors but when I saw work from defense then I took that as moat.
Also, I saw base for profit was very small for sept and Dec. So, if it could give positive results in coming qtr then we can hope of big gain. Old tender won still have time to expire so pretty safe. But I don’t know why its profit was low for sept and Dec qtr and why it posted very good result in March qtr!
Due to low liquidity, we can’t add big money here. Just 1 lakh rupees can buy nearly 2000 shares and most of the days, 2000 total shares traded.
I am also hoping gain from recent de freezing of oil fields by govt. Tenders for that will start in 3 months time from now. What do u think of that? Can it get anything from there?
Invested here.

1 Like
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Had a talk with the management representative few days back. Company is in advanced stages for procuring an OPV and deal may be struck anytime soon. The intimation should come to BSE mostly by the end of this month after the procurement is done.

1 Like
19

Hi Friends,

Planning to invest in this company, so doing my analysis step by step:

Duke Offshore
Market Cap.: 23.66 Cr. Current Price: 48.00 Book Value: 25.48 Stock P/E: 6.19 Dividend Yield: 1.14%
Face Value: 10.00 52 Week High/Low: 77.95 / â‚ą 17.85 Debt: â‚ą 0.00 Cr. Debt to equity: 0.00
EPS: 8.84 ROCE3yr avg: 40.45% Quick ratio: 2.22 Current ratio: 4.09 PB X PE: 11.64
Debtor days: 53.29 Profit growth 3Years: -11.68% PEG Ratio: 0.15 Promoter holding: 70.61%
Earnings yield: 19.11% Dividend Payout: 10.76% Mkt Cap To Debt Cap: 0.49 OPM: 46.50% OPM 5Year: 53.67%
Volume: 4,839.00 Sales growth 5Years: 30.31% Interest Coverage: â‚ą 30.00 Market Cap to Sales: 2.51
Average return on equity 3Years: 21.74% Dividend Payout Ratio: 10.76% Change in promoter holding 3Years: -0.49%

Financial analysis

Sales Growth:

years 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar
Sales 0.02 0.03 0.08 0.03 6.33 2.47 0 8.48 5.66 6.56 9.28
CAGR = 24%
Result: The sales growth is good

Profitability:
year 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar
Sales(A) 0.02 0.03 0.08 0.03 6.33 2.47 0 8.48 5.66 6.56 9.28
Operating Profit(B) -0.14 -1.16 -1.4 -0.36 2.61 0.38 -1.15 5.73 3.1 3.56 4.85
OPM%(B?A) -700 -3,866.67 -1,750.00 -1,200.00 41.23 15.38 67.57 54.77 54.27 52.26
Other Income© 0.01 0.86 0 0.19 0.14 0.09 0.13 0.16 0.12 0.42 0
EBIDT* (D=B+C) -0.13 -0.3 -1.4 -0.17 2.75 0.47 -1.02 5.89 3.22 3.98 4.85
Depreciation (E) 0.02 0 0 0 0.02 0.03 0.41 1.05 1.2 1.08 0.74
Interest (F) 0.01 0 0 0 0 0 0.1 0.24 0.09 0.03 0.15
Profit before tax (G=D-E-F) -0.16 -0.3 -1.4 -0.17 2.72 0.44 0.84 4.61 1.95 2.88 3.97
Tax (H) 0 0 0 0 0.34 0.07 0.26 1.41 0.63 0.97 1.46
Net profit
(I=G-H) -0.16 -0.3 -1.4 -0.17 2.38 0.37 0.58 3.19 1.31 1.9 2.51
NPM% (I/A) -800% -1000% -1750% -567% 38% 15% #DIV/0! 38% 23% 29% 27%

After mar 12, the NPm is in good shape

Tax:
year 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar
Profit before tax A -0.16 -0.3 -1.4 -0.17 2.72 0.44 0.84 4.61 1.95 2.88 3.97
Tax B 0 0 0 0 0.34 0.07 0.26 1.41 0.63 0.97 1.46
Tax% B/A 0 0 0 0 12.5 16 31 30 32 34 37
Tax%>30 is good and here it is around 30 from last 4 years

Interest coverage:
year 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar
Operating Profit(A) -0.14 -1.16 -1.4 -0.36 2.61 0.38 -1.15 5.73 3.1 3.56 4.85
Interest B 0.01 0 0 0 0 0 0.1 0.24 0.09 0.03 0.15
Interest coverage (A/B) -14 NA NA NA NA NA -11.5 23.875 34.444 118.67 32.33
Last four years the interest coverage ratio is in good shape

ANALYSIS OF BALANCE SHEET (B/S):
Debt to Equity ratio (D/E, Leverage):

Year 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar
Equity Capital 4.98 4.98 4.98 4.98 4.98 4.98 4.98 4.98 4.98 4.98 4.98
Reserves -3.37 -3.67 -5.07 -5.24 -2.86 -2.49 -1.91 0.99 2.16 4.06 6.31
T sh funds
(E=1+2) 1.61 1.31 -0.09 -0.26 2.12 2.49 3.07 5.97 7.14 9.04 11.29
Sec Loans (3) 0.41 0.38 0.38 0.27 0 0 0 0 0.36 0.83 0
Unsec Loans (4) 1.09 1.3 0.8 0.84 0.62 0.42 2.11 2.26 0 0 0
Tot deb (D=3+4) 1.5 1.68 1.18 1.11 0.62 0.42 2.11 2.26 0.36 0.83 0
D/E 0.93 1.19 -13 -4.2 0.3 0.17 0.68 0.37 0.05 0.09 0

D/E<1 last 7 years – Good

Current Ratio (CR):
Year 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar
Inventories (A) 0 0 0 0 0 0 0 0.05 0.08 0 0.15
Receivables (B) 0.56 0.53 2.17
Cash (C ) 1.22 0.204 0.12
Current Assets (CA=A+B+C) 1.94 0.32 0.15 1.14 2.74 3.29 3.24 1.88 0.74 2.44
Current Liabilities(D) 3.56 1.13 0.69 0.79 0.9
Provisions (E ) 0 0.14 0.14 0 0.12
Total CL (CL=D+E) 0.28 0.3 0.1 0.74 0.89 3.56 1.13 0.69 0.79 0.9
CR (CA/CL) 6.9286 1.0667 1.5 1.5405 3.07865 0.92416 2.86726 2.72464 0.93671 2.71111

CA>1.25 ……most of the time…this is good

ANALYSIS OF CASH FLOW STATEMENT (CF):

Year 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar
Cash from Operating Activity -0.1 -0.07 -0.09 -0.1 2.71 0.04 1.75 3.27 2.24 3 5.23
Cash from Investing Activity 0 0 0 0 -2.1 1.35 -4 -2.29 -0.9 -4.52 -4.33
Cash from Financing Activity 0 0 0 0 -0.49 -0.2 1.75 -0.03 -1.98 0.49 -0.98
Net Cash Flow -0.1 -0.07 -0.09 -0.1 0.12 1.19 -0.5 0.95 -0.64 -1.03 -0.08
Cash at the end of year 0.2 0.1 0.22 1.41 0.92 1.87 1.23 0.2 0.12

CFO- Increasing YOY
Cash from investing Activity is –ve….confused the meaning
Cash from Financial Activity is –ve….confused the meaning

Cumulative PAT vs. cumulative CFO:
Year 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar Total
PAT -0.16 -0.3 -1.4 -0.17 2.38 0.37 0.58 3.19 1.31 1.9 2.51 10.21
CFO -0.1 -0.07 -0.09 -0.1 2.71 0.04 1.75 3.27 2.24 3 5.23 17.88

Here CPAT<CCFO – Not sure what it indicates

Valuation Analysis
Ratio Value ideal Comment
p/E ratio 6.19 <10 Good
PEG ratio 0.15 undervalued stock
PB X PE 11.64 <122 Graham said it should be <122
p/s 2.51 <1.5 if p/s>3: sell the stock
Dividend Yield 1.14% >5% Not so important
EV/EBITDA 4.79 Low meaning undervalued

Ideally this looks a undervalues stock

Business & Industry Analysis
Compare Sales growth rate with peers
Year 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar Total
Duke Off 0.02 0.03 0.08 0.03 6.33 2.47 0 8.48 5.66 6.56 9.28 84.78%
Dolphin
Offshore Enterprises
(India) Ltd 139 183 212 234 352 553 0 200 415.6 357.7 196.5 3.84%
Alphageo (India) Ltd 23.1 23.9 54.3 81.6 63.9 78.33 20.86 25.23 8.66 44.41 63.97 1.78%
Gemmia Oiltech (India) Ltd 0 0 0.45 1.72 3.15 5.52 9.07 8.3 0.18 0 NA
Duke offshore sales growth is better than its peers – very Good sign

Increase In Production Capacity And Sales Volume:
Year 5-Mar 15-Mar CAGR
Production capacity (tonnes per annum)
Quantity sold (tonnes) (A)
Sales price per tonne (INR) (B)
Total sales (INR Cr./10 Million) (A*B)
Not able to find the data

Still analysis is in progress.

1 Like
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Dear @mahesh112, It will be very good if you to put this in excel sheet and present so all users can understand what you are trying to say.

Disc: Not invested, Was on radar but not tracking now.

1 Like