December 20, 2007| Aviation

Initiating Coverage
Current price Target price
Global Vectra Helicorp (GLOVEC) Rs 156 Rs 214
Potential upside Time Frame
37% 12 months
Propelled by the oil boom …
OUTPERFORMER
Global Vectra Helicorp is India’s largest private sector helicopter company
that is focussed on servicing the oil E&P (exploration and production) Analysts’ Name
sector. It is rapidly increasing its fleet size to capitalise on the growing Siddhartha Khemka
demand for helicopter services. We initiate coverage on the company with siddhartha.khemka@icicidirect.com
an OUTPERFORMER rating, and a 12-month target price of Rs 214. Ember Pereira
ember.pereira@icicidirect.com
ƒ Increase in offshore E&P activities to drive demand
Demand for offshore helicopter services is expected to rise on the back of Sales & EPS trend
increased E&P activities in the oil and gas sector. Out of the 165 oil blocks 250 25
awarded during the six NELP (National Exploration Licensing Policy) rounds, 200 20
102 were offshore blocks. 15

Rs crore
150
10

Rs
100
ƒ Largest dedicated offshore helicopter service provider 5
50 0
Global Vectra has the largest dedicated fleet of 22 helicopters servicing the
0 -5
offshore E&P sector in India. It is the biggest player with a 42% market share FY05 FY06 FY07 FY08E FY09E
and would benefit from the increased interest in oil and gas exploration Net Sales EPS (RHS)
activities.
Stock metrics
ƒ Boosting fleet size to meet demand Promoters holding 75.0%
The company currently has a fleet of 20 Bell 412 helicopters and two Market Cap Rs 226.8 crore
Eurocopter EC 155 B1 helicopters. Two more Bell 412 helicopters would be 52 Week H/L 327 / 132
joining in March 2008. It has placed orders for three EC 155 and two Bell 412 Sensex 19,261
helicopters, which are scheduled to be delivered during H2FY09, taking the Average volume 77,281
total fleet to 29. The enhanced fleet size will further strengthen its
established position.
Comparative return metrics
Valuations Stock return 3M 6M 12M
At the current price of Rs 156, the stock is trading at 10.14x its FY08E EPS of Global Vectra -14% -32% -25%
Rs 15.38 and 8.02x its FY09E EPS of Rs 19.46. On an EV/EBIDTA basis, the Deccan Aviation 98% 112% 114%
stock is available at 6.74x FY08E earnings and 6.54x FY09E earnings. We
believe it offers good upside from these levels. We value the stock at 11x its
FY09E EPS, to arrive at a 12-month target price of Rs 214 and rate the stock
an OUTPERFORMER. Our target price provides an upside potential of 37%.

Exhibit 1: Key Financials Price trend

Year to March 31 FY06 FY07 FY08E FY09E
Revenue (Rs cr) 89.53 149.37 193.08 230.33 350
325
Net Profit (Rs cr) 7.50 12.50 21.53 27.25 300
Absolute Sell
EPS (Rs) 6.70 8.93 15.38 19.46 275
Share Price (Rs)

250
% Growth 33.3% 72.3% 26.6% 225 Target Price
P/E (x) 23.29 17.48 10.14 8.02 200
175
Price/Book (x) 0.86 0.70 0.55 0.41 150
125 Absolute Buy
EV/EBIDTA (x) 8.07 6.97 6.74 6.54 100
NPM (%) 8.38 8.37 11.15 11.83 75
50
RoNW (%) 39.84 15.97 21.58 21.45
Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

RoCE (%) 15.76 15.77 18.04 14.73

Source: ICICIdirect Research

ICICIdirect | Equity Research

1|Page
Company Background Share holding pattern
Share holder % holding
Global Vectra Helicorp is India’s largest private sector Promoters 75.00
helicopter company that is focused on servicing the oil Institutional investors 8.48
exploration and production sector. The company has a fleet
Other investors 6.23
of 20 Bell 412 helicopters and 2 Eurocopter EC 155 B1
helicopters. Each has 13 passenger seats and two pilots General public 10.29
seats. It employs 56 pilots and 60 engineers including 7
aircraft maintenance engineers (AMEs). The average age of Promoter & Institutional holding trend
the helicopters is ~ 8 years. Global Vectra Helicorp 75.0 75.0 75.0 75.0
80
transports crew and cargo for oil and gas companies to
offshore oil platforms located approximately 50 to 100 60
nautical miles from the coastlines for their exploration and

(%)
production activities. 40

20 14.1 14.8 14.2

8.5
Incorporated in 1998 as Azal India Pvt Ltd, the company
was taken over by the Vectra Group in October 2004. The 0
promoters of Global Vectra Helicorp are Vectra Investments Q3FY07 Q4FY07 Q1FY08 Q2FY08
Pvt Ltd; Azal Azerbaijan Aviation, Ireland; and Ravindra
Kumar Rishi, an UK-based NRI. Global Vectra is India’s first Promoters Institutional investors
ISO 9001-2000, ISO 14001-2000 and OHSAS ISO 1800-
1999-certified aviation company.

Exhibit 2: Revenue Model (FY07)

Global Vectra Helicorp

Total Revenues
Rs 149.37 crore

55% 45%
Fixed Monthly charges Flying hourly charges

45%
EBIDTA margins

8.4%
Net profit margins

Source: Company, ICICIdirect Research

2|Page
INVESTMENT RATIONALE

Increase in offshore E&P activities to drive demand

Demand for offshore helicopter services is expected to be strong on the back
of increased exploration and production (E&P) activities in the oil and gas
sector. India’s crude oil production in 2006 was 33 mmtpa (million metric
tonnes per annum). This sufficed for only 30% of total demand. The remaining More than 85% of India’s oil
70% was imported. Demand is expected to grow at 6% to 8% annually. With reserves are located in offshore
crude prices showing no signs of softening, and increasing demand-supply blocks
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 VII
Of the 165 blocks offered under
Offshore 23 16 15 10 8 30 28
the six rounds of NELP, 102
Onshore 1 7 8 10 12 25 29 were offshore blocks
Total 24 23 23 20 20 55 57
Year of signing 2000 2001 2003 2004 2005 2007 2008
Source: 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 India’s 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 provider

Global 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
With a fleet of 22 helicopters
from providing offshore helicopter support services, they are also involved in Global Vectra is the largest
onshore operations like heli-tourism, religious tourism, airport-to-airport dedicated offshore helicopter
connections, VIP transportation, private charter services, and corporate company in India
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 10
United Helicharters 9 0 9
Source: DGCA, Industry, ICICIdirect Research

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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 player
with 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 demand

With 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 be
joining 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

35
29
30
24
25
18 Fleet size expected to
20
increase from 18 in FY07 to 29
15 by FY09E
11
10
6
5

0
FY05

FY06

FY07

FY08E

FY09E

Source: Company, ICICIdirect Research

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.

4|Page
Client stickiness
The company provides services to its clients under long-term contracts. These
contracts range from one to three years with renewal options. The company, Long-term nature of contract
which started with just one client eight years ago, has five clients today. Most increases the client stickiness
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 High
GSPC 2 East Coast
Source: Company, ICICIdirect Research

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)

Others
GSPC
3%
Transocean 6%
5%

British Gas
18%
ONGC
54%

Reliance Ind.
14%
Source: Company, ICICIdirect Research

Global Vectra, which was the first to foray into offshore helicopter services, With more than 8 years of
enjoys the first-mover advantage. The industry is tightly regulated. Companies experience, Global Vectra has
operating in this sector require considerable expertise to qualify. Further, there a competitive edge
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.

5|Page
In-house maintenance capabilities reduce downtime
Global Vectra has a state-of-the-art engineering facility, which maintains India’s
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.

6|Page
RISK AND CONCERNS

Heavy dependence on E&P activity

Global Vectra’s 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 company’s 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 company’s
business drastically.

High client concentration

The 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
company’s 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 personnel

The boom in the aviation industry has resulted in an acute shortage of skilled
personnel, especially pilots, engineers, and technicians. Salaries have also
skyrocketed. 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 company’s 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.

7|Page
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

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

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

Revenues to grow on back of demand and fleet addition

The 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

250 Increased E&P activities to

drive revenues
200
45% CAGR
150
(Rs crore)

100

50

0
FY05

FY06

FY07

FY08E

FY09E

Source: Company, ICICIdirect Research

8|Page
Rising cost to impact operating profit margins
Expenditure 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 to
decline 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

110 55%
51%
100
50%
90
45%
80 43% 45% EBIDTA to take a hit due to
(Rs crore)

70 41%
rising cost pressures
60 40%

50
35%
40
45.4 66.7 78.7 98.0
30 30%
FY06

FY07

FY08E

FY09E

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

Source: Company, ICICIdirect Research

Net profits to surge

The 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

Net profit to see a healthy
30 14% growth aided by other
27.2
12% income
25
21.5
20 10%
15.1 8%
(Rs crore)

15 12.5
6%
10 7.1 8.0
4%
5 2%
0.7 0.3 0.4
0 0%
-0.4
-5 -2%
FY05

FY06

FY07

FY08E

FY09E

Net Profit Other Income NPM (RHS)

Source: Company, ICICIdirect Research

9|Page
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 and
high entry barriers will also be positives for the company. Globally, helicopter service
providers are trading at 19-
Globally, helicopter service providers like Bristow Group (Texas, US) and CHC 20x their FY07 EPS
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)
EV /
Market P/E EBIDTA RoE RoCE
Company Cap Revenue EBITDA PAT (x) (x) (%) (%)
Bristow Group 1310 891 162 63 21.0 11.3 11.4 6.4
CHC Helicopter
corporation 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 15.7
Source: Reuters, ICICIdirect Research

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FINANCIAL SUMMARY
Profit and Loss Account (Rs Crore)
Year to March 31 FY06 FY07 FY08E FY09E
24% CAGR in revenue over
Revenues 89.53 149.37 193.08 230.33
FY07-09E
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 High other income on account
of foreign exchange on ECB and
Other income 0.34 0.42 15.10 7.99
other loans
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 27.25 48% CAGR in net profit over
Operating margins (%) 50.69 44.62 40.77 42.56 FY07-09E
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)

Year to March 31 FY06 FY07 FY08E FY09E
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 171.34 242.68 308.12 416.44
Unsecured 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 High net block due to increase
in fleet size
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

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Cash Flow Statement (Rs Crore)
Year to March 31 FY06 FY07 FY08E FY09E
Opening Cash Balance 3.46 3.10 1.29 0.83
Profit 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 in loan funds on
Increase / (Decrease) in Equity Capital 3.20 46.92 0.00 0.00 account of capex
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
Year to March 31 FY06 FY07 FY08E FY09E
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 6.54
Market 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 Decline in operating margins
Net Profit Margin (%) 8.38 8.37 11.15 11.83 due to high cost, while net
margins remain steady
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

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RATING RATIONALE

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

Outperformer: 20% or more;

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

Harendra Kumar Head - Research & Advisory harendra.kumar@icicidirect.com

ICICIdirect Research Desk,

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

research@icicidirect.com

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