Wednesday, September 16, 2009

[Investors Please Listen] Bharati Shipyard ups open offer for Great Offshore to Rs560 per share

Bharati Shipyard (BSL) has bought additional 1.12 mn shares (3% share) in Great Offshore (GOL) for a total consideration of Rs630 mn (at an average price of Rs598.8 per share). Thus, it has increased its stake in GOL to 22.5%. Following the above acquisition, BSL has increased the open offer price to Rs560 per share. BSL's offer price is at a premium of 7.7% over ABG Shipyard's (ABGS) offer price of Rs520 per share.

Post the above increase in open offer price, BSL's cost of acquiring 20% interest in GOL has increased from Rs3.2 bn (at Rs403/Share) to Rs4.4 bn, while its DER would increase from 0.8X to 1.8X (pre warrant issue). In the event, the bidding war between ABGS and BSL intensifies further; it is likely to significantly increase the cost of acquisition, negatively impacting the attractiveness thereof. However, the long term interests are likely to remain intact.

At CMP, the stock is trading at 3.7X FY10E and 5.4X FY11E earnings of Rs55.7 and Rs38.5 per share respectively. We have a 'HOLD' rating on the stock with a target price of Rs171.


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