Global Vectra Helicorp

8/14/2019 Global Vectra Helicorp

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Company Background

Global Vectra Helicorp is Indias largest private sector

helicopter company that is focused on servicing the oilexploration and production sector. The company has a fleetof 20 Bell 412 helicopters and 2 Eurocopter EC 155 B1helicopters. Each has 13 passenger seats and two pilotsseats. It employs 56 pilots and 60 engineers including 7aircraft maintenance engineers (AMEs). The average age ofthe helicopters is ~ 8 years. Global Vectra Helicorptransports crew and cargo for oil and gas companies tooffshore oil platforms located approximately 50 to 100nautical miles from the coastlines for their exploration andproduction activities.

Incorporated in 1998 as Azal India Pvt Ltd, the company

was taken over by the Vectra Group in October 2004. Thepromoters of Global Vectra Helicorp are Vectra InvestmentsPvt Ltd; Azal Azerbaijan Aviation, Ireland; and RavindraKumar Rishi, an UK-based NRI. Global Vectra is Indias firstISO 9001-2000, ISO 14001-2000 and OHSAS ISO 1800-1999-certified aviation company.

Share holding pattern

Share holder % holding

Promoters 75.00

Institutional investors 8.48Other investors 6.23

General public 10.29

Promoter & Institutional holding trend

75.0 75.0 75.0 75.0

14.1 14.8 14.28.5

0

20

40

60

80

Q3FY07 Q4FY07 Q1FY08 Q2FY08

(%)

Promoters Institutional investors

Global Vectra Helicorp

Exhibit 2: Revenue Model (FY07)

Total RevenuesRs 149.37 crore

55%Fixed Monthly charges

45%Flying hourly charges

45%EBIDTA margins

8.4%Net profit margins

Source: Company, ICICIdirect Research


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INVESTMENT RATIONALE

Increase in offshore E&P activities to drive demandDemand for offshore helicopter services is expected to be strong on the back

of increased exploration and production (E&P) activities in the oil and gassector. Indias crude oil production in 2006 was 33 mmtpa (million metric

tonnes per annum). This sufficed for only 30% of total demand. The remaining

70% was imported. Demand is expected to grow at 6% to 8% annually. With

crude prices showing no signs of softening, and increasing demand-supply

gap, domestic E&P activities are set to increase.

In a bid to boost crude oil production in the country and induce private players

to invest in the capital-intensive oil exploration, the government formulated the

new exploration & licensing policy (NELP).

Exhibit 3: Blocks offered under NELP

Blocks NELP I NELP II NELP III NELP IV NELP V NELP VI NELP VIIOffshore 23 16 15 10 8 30 28

Onshore 1 7 8 10 12 25 29

Total 24 23 23 20 20 55 57

Year of signing 2000 2001 2003 2004 2005 2007 2008Source: Directorate General of Hydrocarbons

So far, six rounds of bidding were conducted, and the government has already

awarded 165 exploration blocks. Out of these 165 blocks, 102 were offshore

blocks. The seventh round (NELP VII) announced recently is likely to offer

another 28 offshore blocks. According to the Ministry of Petroleum & Natural

Gas, ~ 85% of Indias oil reserves are located in offshore blocks. This

increased offshore E&P activities will boost demand for transporting crew and

cargo to these blocks, thereby resulting in extra demand for helicopter

services.

Global Vectra: Largest dedicated offshore helicopter service providerGlobal Vectra has the largest dedicated fleet (22 helicopters) servicing the

offshore E&P sector. The company will continue its focus on the offshore oil

segment. Offshore flying constitutes a large proportion of the helicopter

market in India. While charter business is uncertain by nature, offshore E&P

support offers the benefits of assured business every month as well as long-

term security.

Currently, four major players dominate the helicopter industry in India. Apart

from providing offshore helicopter support services, they are also involved in

onshore operations like heli-tourism, religious tourism, airport-to-airport

connections, VIP transportation, private charter services, and corporate

charters.

Exhibit 4: Fleet size of major players

Offshore Others Total

Pawan Hans 12 23 35

Global Vectra 22 0 22

Deccan Aviation 1 9 10United Helicharters 9 0 9Source: DGCA, Industry, ICICIdirect Research

Of the 165 blocks offered under

the six rounds of NELP, 102

were offshore blocks

With a fleet of 22 helicopters

Global Vectra is the largest

dedicated offshore helicoptercompany in India

More than 85% of Indias oil

reserves are located in offshore

blocks


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With oil prices touching all time highs, interest in oil and gas exploration is

expected to remain buoyant. The NELP programme is further expected to

boost demand for offshore charter services. Global Vectra is the biggest playerwith a 45% market share. We believe its vast experience and huge scale of

operations give it an edge over competitors.

Boosting fleet size to meet demandWith more E&P activities lined-up on the western coast (Mumbai High and

Cambay Basin) and eastern coast (KG and Mahanadi basin), the company is

ramping up its fleet size in order to capitalise on increased demand for

helicopter services.

The company currently has a fleet of 20 Bell 412 helicopters and two

Eurocopter EC 155 B1 helicopters. Two more Bell 412 helicopters would bejoining in March 2008. It has placed orders for three EC 155 and two Bell 412

helicopters, which are scheduled to be delivered during H2FY09, taking the

total fleet to 29.

Exhibit 5: Fleet size to increase

6

11

18

24

29

0

5

10

15

20

25

30

35

FY05

FY06

FY07

FY08E

FY09E


The company has ordered a Eurocopter EC 155 B1 to cater to the expanding

deepwater exploration activity. The Eurocopter can travel over longer range(110-120 nautical miles) without refuelling. The number of deepwater blocks

offered with successive NELP rounds is increasing. The EC 155 B1 is ideally

suited to address the challenges of deepwater E&P activities.

Fleet size expected to

increase from 18 in FY07 to 29by FY09E


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Client stickinessThe company provides services to its clients under long-term contracts. These

contracts range from one to three years with renewal options. The company,which started with just one client eight years ago, has five clients today. Most

of its initial customers continue using its services. Companies involved in

offshore E&P activities have to use helicopter services extensively for

transportation of crew and cargo.

Exhibit 6: Client details

Company No of helicopters Region

ONGC 9 Mumbai High & East Coast

Reliance Industries 3 East Coast

British Gas 2 Mumbai High

Transocean 2 Mumbai HighGSPC 2 East Coast


The contracts comprises of two components: (1) Fixed monthly charge, and

(2) hourly flying charges. The hourly flying charges depend on the number of

hours flown. Revenues earned from these charges are independent of the

number of seats utilised. The business model provides the company with

assured revenues every month and also long-term security.

Exhibit 7: Client wise Revenue contribution (FY07)

ONGC54%

Reliance Ind.14%

British Gas18%

Transocean

5%GSPC

6% Others3%


Global Vectra, which was the first to foray into offshore helicopter services,

enjoys the first-mover advantage. The industry is tightly regulated. Companies

operating in this sector require considerable expertise to qualify. Further, there

is also a considerable time period involved for gaining entry into the industry.

These factors act as barriers for competitors who want to start operations.

Long-term nature of contract

increases the client stickiness

With more than 8 years of

experience, Global Vectra has

a competitive edge


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In-house maintenance capabilities reduce downtimeGlobal Vectra has a state-of-the-art engineering facility, which maintains Indias

largest Bell 412 fleet & Eurocopter EC 155 B1 helicopter. The company is

certified to undertake the 3,000-hour and five-year checks on Bell 412

helicopters, which entails the complete overhaul of the helicopter and its

components. This in-house capability enables the company to reduce the

downtime for repairs on helicopters, as they do not have to be taken to outside

agencies, leading to enhanced serviceability of the fleet and additional flying

hours due to quicker turnaround time.


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RISK AND CONCERNS

Heavy dependence on E&P activityGlobal Vectras operations are largely dependent on the levels of activity and

transportation needs in the offshore E&P sector. These activities levels are

affected by trends in oil and gas prices. The companys entire fleet caters to

this segment. Any change in the government policy for issuing blocks for E&P

and change in business dynamics for the sector could affect the companys

business drastically.

High client concentrationThe company derives a significant portion of its revenues from five clients,

with the top client contributing more than 54% of the total revenues in FY07.

The loss of any one of these clients, a decrease in the volume of work or a

decrease in the price at which it offers its services may adversely impact the

companys revenue and profitability. Further, failure to maintain an acceptable

safety record may have an adverse impact on its ability to attract and retain

clients.

However, increased activity by other companies like Reliance Industries, GSPC

and some international majors like British Gas & Cairn would help Global

Vectra to lower its dependence on ONGC.

Shortage of skilled personnelThe boom in the aviation industry has resulted in an acute shortage of skilled

personnel, especially pilots, engineers, and technicians. Salaries have alsoskyrocketed. Global Vectra competes with other aviation operators for skilled

personnel and its future growth will depend on its ability to recruit and retain

sufficient number of pilots, engineers and technicians to meet its current and

future requirements.

The shortage of skilled personnel has been a prime cause of concern for

Global Vectra. In the last four months, about 16-17 pilots and a few engineers

have quit. This impacted the companys operations.

The company has recruited more personnel to provide uninterrupted service

to clients. It is taking proactive measures to avoid such a situation in future. It

also plans to hire foreign pilots and also recruit additional trainee co-pilots.


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Financials

Exhibit 8: Revenue assumptions

Particulars FY08E FY09E

No of helicopters 24 29

Average charted hours/ month 95 95

Average utilisation (%) 84 84

Operating Revenues (Rs crore) 193.08 230.33

Fixed monthly charges (%) 55 45 Flying hourly charges (%) 45 55

Average revenue per helicopter per month (Rs crore) 0.67 0.66Source: ICICIdirect Research

Revenues to grow on back of demand and fleet additionThe oil & gas E&P sector is currently witnessing huge activity, which in turn has

led to an increased demand for helicopter services. Global Vectra is increasing

its fleet-size from 18 helicopters in FY07 to 24 by the end of FY09E. We expect

a 24% CAGR in revenues to Rs 230.33 crore from Rs 149.37 crore over FY07-

09E.

Exhibit 9: Revenues set to surge

0

50

100

150

200

250

FY05

FY06

FY07

FY08E

FY09E

(Rscrore)


Increased E&P activities to

drive revenues

45% CAGR


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Rising cost to impact operating profit marginsExpenditure on aviation fuel and manpower accounts for 53% of operational

cost. Crude prices have been rising, and there is a shortage of pilots in the

aviation industry. Due to these cost pressure, EBIDTA margins are likely todecline to 41% in FY08E from a healthy margin of 51% in FY06. However, in

FY09E with an increased fleet size, the company will benefit from economies

of scale due to which we expect margins to improve to 43%.

Exhibit 10: Declining EBIDTA margins due to cost pressure

45.4 66.7 78.7 98.0

51%

45%

41%43%

30

40

50

60

70

80

90

100

110

FY06

FY07

FY08E

FY09E

(Rsc

rore)

30%

35%

40%

45%

50%

55%

EBIDTA (LHS) EBIDTA margins (%) (RHS)


Net profits to surgeThe company witnessed a turnaround in FY06 by reporting a net profit of Rs

7.09 crore against a net loss of Rs 0.43 crore in FY05. In FY07, net profit grew

by 76% to Rs 12.50 crore on back of healthy demand and fleet addition. Going

ahead, we expect a 47.6% CAGR in net profits over the next two years. Despite

a decline in operating margins, net margins are likely to improve on back of

other income. The company will book gains due to the appreciating rupee, as

it is required to mark-to-market its ECB and other foreign currency loans.

Exhibit 11: Trend in net profit, other income and NPM

-0.4

7.1

0.7 0.3 0.4

15.1

8.0

21.5

27.2

12.5

-5

0

5

10

15

20

25

30

FY05

FY06

FY07

FY08E

FY09E

(Rscrore)

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Net Profit Other Income NPM (RHS) Source: Company, ICICIdirect Research

EBIDTA to take a hit due to

rising cost pressures

Net profit to see a healthy

rowth aided by other

income


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VALUATIONS

The stock price fell from a high of about Rs 230 in July 2007 to around Rs 140

levels, well below its IPO allotment price of Rs 185, during October 2006. The

main trigger for the fall was the departure of pilots and engineers during the

last 4-5 months. The exodus hit its operations. However, we believe the

company has weathered the crisis and operations will proceed smoothly

henceforth.

At the current price of Rs 156, the stock is trading at 10.14x its FY08E EPS of

Rs 15.38 and 8.02x its FY09E EPS of Rs 19.46. On an EV/EBIDTA basis, the

stock is available at 6.74x FY08E earnings and 6.54x FY09E earnings.

We believe that the stock is attractively valued considering the huge demand

from the E&P sector for helicopter services. Its aggressive fleet expansion andhigh entry barriers will also be positives for the company.

Globally, helicopter service providers like Bristow Group (Texas, US) and CHC

Helicopter Corp (Canada) are trading at 19-20x their FY07 EPS. However,

Global Vectra is very small in comparison to their operations and fleet size.

We value the stock at 11x its FY09E EPS, to arrive at a 12 months target price

of Rs 214 and rate the stock an OUTPERFORMER. Our target price provides an

upside potential of 37%.

Exhibit 12: Global Peer comparison (US$ million) (latest financial year)

CompanyMarket

Cap Revenue EBITDA PATP/E(x)

EV /EBIDTA

(x)RoE(%)

RoCE(%)

Bristow Group 1310 891 162 63 21.0 11.3 11.4 6.4CHC Helicoptercorporation 1439 1137 182 46 19.0 7.9 8.9 2.9

PHI INC 489 414 46 8 57.1 13.0 NA NA

Global Vectra 55 38 9 3 17.5 6.9 15.9 15.7Source: Reuters, ICICIdirect Research

Globally, helicopter service

providers are trading at 19-

20x their FY07 EPS


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FINANCIAL SUMMARY

Profit and Loss Account (Rs Crore)

Year to March 31 FY06 FY07 FY08E FY09E

Revenues 89.53 149.37 193.08 230.33

Employee cost 11.07 22.00 31.80 37.64

Operating cost (Fuel, spares & maintenance) 23.46 38.97 54.01 61.96

Selling and administrative cost 6.82 7.22 9.65 11.29

Other expenses 2.80 14.52 18.90 21.43

Total expenditure 44.15 82.71 114.36 132.31

EBITDA 45.39 66.66 78.72 98.02

Other income 0.34 0.42 15.10 7.99

Depreciation 12.11 15.71 19.30 24.79

Interest 22.95 32.49 42.02 40.08

PBT 10.66 18.87 32.51 41.15

Taxation 3.16 6.37 10.98 13.90

PAT 7.50 12.50 21.53 27.25Operating margins (%) 50.69 44.62 40.77 42.56

Net margins (%) 8.38 8.37 11.15 11.83

Shares O/S (crore) 1.12 1.40 1.40 1.40

EPS (Rs) 6.70 8.93 15.38 19.46

Balance Sheet (Rs Crore)


Sources of Funds

Equity Share Capital 11.20 14.00 14.00 14.00

Reserves & Surplus 7.63 64.25 85.78 113.02

Secured Loans 171.34 242.68 308.12 416.44Unsecured Loans 23.13 4.72 5.23 8.00

Deferred Tax Liability 4.60 10.68 17.98 27.22

Current Liabilities & Provisions 28.55 49.38 64.78 88.63

Total Liability 246.44 385.71 495.89 667.31

Application of Funds

Net Block 164.47 293.69 404.39 559.60

Capital WIP 39.45 16.77 0.00 0.00

Cash 3.10 1.29 0.83 1.85

Trade Receivables 22.72 40.27 52.05 62.09

Loans & Advances 16.70 33.69 38.62 43.76

Total Asset 246.44 385.71 495.89 667.31

48% CAGR in net profit overFY07-09E

24% CAGR in revenue over

FY07-09E

High net block due to increase

in fleet size

High other income on account

of foreign exchange on ECB and

other loans


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Cash Flow Statement (Rs Crore)


Opening Cash Balance 3.46 3.10 1.29 0.83Profit after Tax 7.09 12.50 21.53 27.25

Misc. Expenditure w/off 0.35 0.00 0.00 0.00

Dividend Paid 0.00 0.00 0.00 0.00

Depreciation 12.11 15.71 19.30 24.79

Provision for deferred tax 2.19 6.08 7.30 9.24

Cash Flow before WC Changes 21.74 34.29 48.12 61.28

Net Increase in Current Liabilities 18.49 20.83 15.41 23.84

Net Increase in Current Assets 25.69 34.54 16.71 15.19

Cash Flow after WC Changes 14.53 20.58 46.82 69.93

Purchase of Fixed Assets (188.18) (122.24) (113.23) (180.00)

Increase / (Decrease) in Loan Funds 170.08 52.93 65.95 111.09

Increase / (Decrease) in Equity Capital 3.20 46.92 0.00 0.00

Net Change in Cash (0.37) (1.81) (0.46) 1.03

Closing Cash Balance 3.10 1.29 0.83 1.85

Ratio Analysis


EPS (Rs) 6.70 8.93 15.38 19.46

Book Value (Rs) 180.44 222.61 285.09 383.91

Enterprise Value (Rs Crore) 366.09 464.51 530.92 640.99

EV/Sales (x) 4.09 3.11 2.75 2.78

EV/EBIDTA (x) 8.07 6.97 6.74 6.54Market Cap to sales (x) 1.95 1.46 1.13 0.95

Price to Book Value (x) 0.86 0.70 0.55 0.41

Operating Margin (%) 50.69 44.62 40.77 42.56

Net Profit Margin (%) 8.38 8.37 11.15 11.83

RONW (%) 39.84 15.97 21.58 21.45

ROCE (%) 15.76 15.77 18.04 14.73

Debt/ Equity (x) 10.33 3.16 3.14 3.34

Current Ratio 1.49 1.52 1.41 1.22

Debtors Turnover Ratio 3.94 3.71 3.71 3.71

Fixed Assets Turnover Ratio 0.54 0.51 0.48 0.41

Increase in loan funds on

account of capex

Decline in operating margins

due to high cost, while net

margins remain steady


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ICICIdirect endeavours to provide objective opinions and recommendations. ICICIdirect assigns ratings to itsstocks according to their notional target price vs. current market price and then categorises them asOutperformer, Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified andthe notional target price is defined as the analysts' valuation for a stock.

RATING RATIONALE

Outperformer: 20% or more;Performer: Between 10% and20%;Hold: +10% return;Underperformer: -10% or more.

Harendra Kumar Head - Research & Advisory [email protected]

ICICIdirect Research Desk,

ICICI Securities Limited,

Ground floor, Mafatlal House,163, H.T. Parekh Marg,Backbay Reclamation,Churchgate,Mumbai 400 020

[email protected]

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Global Vectra Helicorp

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