| Seamec Limited | ||||
| ‘CRISIL A’ assigned to Bank Debt; Rating placed on ‘Watch Developing’ | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL A’ rating to the long-term bank facilities of Seamec Limited. (Seamec) and placed it on ‘Rating Watch with Developing Implications’.
The rating centrally factors in the established market presence of the company in providing multi support vessels (MSVs) on a charter hire basis under long-term contracts, to offshore exploration & production (E&P) players in India. The company has a healthy financial risk profile too, with a net debt-free position maintained as on September 30, 2021.These strengths are partially offset by its moderate scale of operations, ageing vessels, exposure to client concentration risks and susceptibility of operating performance to fluctuations in vessel charter rates.
CRISIL Ratings has placed the rating on “Watch Developing” since the company’s management in its board meeting held on November 02, 2021, approved a proposal of restructuring Seamec’s business with its parent - HAL Offshore Ltd (HAL; CRISIL A/CRISIL A1; Placed on ‘Rating Watch with Developing Implications’). As on September 30, 2021, HAL holds 70% stake in Seamec. The proposal is in its initial stage and the structure is not finalised. Accordingly, the impact of this restructuring on the credit risk profile of Seamec is currently not ascertainable. The watch will be resolved once details of the structure and its timelines are known and its subsequent impact on Seamec’s credit risk profile can be ascertained. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of Seamec and its subsidiaries, as these entities are in a similar line of business and have strong operational, managerial, and financial linkages.
Further, to factor the strategic importance of Seamec to HAL and the strong operational and managerial support expected, CRISIL Ratings has applied its parent notch-up framework to arrive at the final rating.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strategic importance to HAL, with established market presence in the vessel hire business Seamec along with its parent, HAL, has established its market presence in providing MSVs on a charter- hire basis to offshore E&P players in India, namely Oil & Natural Gas Corporation Ltd. (ONGC). These services continue to be of importance to the E&P players, considering the increased focus on enhancing output from the domestic oilfields and their own ageing assets. While there could be continued requirement for the existing vessels owned, future growth opportunities from this segment could however be limited.
Seamec contributes to more than 20% of the consolidated revenue of HAL, wherein being in the similar line of business there is a strong operational and managerial linkages between these entities. Considering the adequate liquidity Seamec maintains, no financial support is expected from HAL.
Comfortable operating performance The long-term contracts executed to charter the MSVs (owned or leased), provides a medium-term visibility on the expected revenue from this segment. Healthy operating margin of 50-60% is earned on the owned fleets. While the MSVs owned have secured long-term contracts in place, the diving support vessel (DSV) and bulk carriers are deployed on a short-term/spot basis. Overall revenue and margin are hence susceptible to redeployment risk associated with these vessels/carriers, which contribute to 30-35% of total revenue.
Healthy financial risk profile Financial risk profile is driven by comfortable gearing and adequate liquidity. Against the outstanding debt of Rs 89 crore as on March 31, 2021, the company has maintained a cash balance of Rs 432 crore and is thus a net debt-free company. Financial metrics are comfortable, with gearing of 0.13 time as on March 31, 2021 and interest coverage ratio of 14.85 times for fiscal 2021. Even though Seamec is in the process of replacing its aged fleets, liquidity available in the books should be sufficient to fund this capital expenditure (capex) and hence dependence on external funding will be low.
Weaknesses Ageing fleet of vessels exposes operating performance to redeployment risk Seamec owns four vessels, four bulk carriers and one barge, amongst which three vessels are aged more than 35 years. This increases the redeployment risk of these vessels as they may not suffice the bidding criteria of the E&P players such as ONGC. To mitigate this risk, Seamec is in the process of replacing these vessels with a younger fleet. Timely replacement within the budgeted investment would be a key rating monitorable.
Exposure to client and segmental concentration risk DSV services are provided for the offshore oilfields in India, exploration rights for which are majorly owned by ONGC. This exposes Seamec to client concentration risk. However, having a strong client is beneficial in terms of receiving timely payments. Also, since the revenue are entirely dependent on off-shore E&P activities, it exposes the entity to segmental concentration risk.
Susceptibility of operating performance to fluctuation in vessel charter rates Profitability and cash flow in the offshore business depend on the offshore charter rates, which are inherently volatile. This has direct impact on the profitability of companies. However, charter rates of the vessels deployed by Seamec have however remained stable in the past, thereby mitigating this risk to an extent. |
Liquidity: Strong Seamec maintained a cash and cash equivalent of Rs 432 crore as on March 31, 2021. The company is expected to generate cash accruals of around Rs 160-190 crore in fiscals 2022 and 2023. The annual accruals generated as well as the surplus liquidity maintained, would be sufficient to meet its near-term annual repayment obligations of Rs. 30 crores for fiscal 2023 and fiscal 2024. Considering sufficient liquidity maintained, the company has a low dependence on working capital funding. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Seamec (a part of the MM Agarwal group) was incorporated in 1986. It operates in two distinct verticals of the shipping business - offshore support & services and bulk carrier charter business. The company owns six vessels in the offshore support business wherein the vessels are deployed in the domestic market. Through its international subsidiary - Seamec International FZE and its joint venture company – Seamate Shipping FZC, the company has also diversified its presence in the bulk carrier charter business wherein it owns three carriers.
For the six months ended September 30, 2021, Seamec reported profit after tax (PAT) of Rs 39 crore on revenue of Rs 181 crore, against a PAT of Rs 12 crore on revenue of Rs 116 crore for the corresponding period of the previous fiscal.
HAL, along with the promoter group, holds 72.04% stake in Seamec, with the balance stake held by the public. HAL is also involved in the similar line of business wherein it is an ‘end-to-end’ solution provider of underwater services and EPC services to the Indian oil and gas industry. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Rs 5 crore is inter-changeable with letter of credit (LC) limit and Rs 1 crore with cash credit (CC) limit |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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