Room for strategic investor on board Great Offshore

There is room for a strategic investor in Great Offshore, which may be willing to pay a premium over the book value of the company, say analysts.

“I think the bidding war is not over yet; there is scope for a higher bid,” said Saeed Jaffery, an analyst with Ambit Capital. Jaffery has valued the stock at Rs 410. He expects the earnings per share of the company to be Rs 61.7 in 2010-11, up from an estimated Rs 55.5 in the current financial year.

Jaffery estimates the book value for the next financial year at Rs 387 a share. At Rs 410, the stock is valued 1.1 times the book value and 6.6 times the earnings for the next financial year.

“I think this is the fair value of the stock and a strategic investor would not hesitate to pay a slight premium to what a financial investor would like to pay,” he said.

ABG, India’s biggest private sector shipyard, and Bharati, the second-biggest, want to buy Great Offshore as demand increases for drill ships and other offshore structures. Depleting crude reserves are prompting oil companies to search for resources in deeper and unexplored waters.

“We have raised our equity share holding as we feel it is a strategic long-term investment,” Bharati Shipyard Managing Director P C Kapoor said. “Irrespective of the ABG Shipyard offer, we will stay invested.”

ABG Chairman Rishi Agarwal, on his part, said: “We’ve got ship building, we’ve got ship repair. Providing offshore services is a good synergy.”

For both ship-builders, the acquisition will take them a step further with the offshore services business and turn the buyer into an integrated shipping firm, though a price war may erode the benefits of the acquisition.