Buy Seamec Ltd For Target 2,270 by Choice Institutional Equities Ltd
Structural Diving Support Vessel Scarcity Sustains Premium Economics
The global high-spec Diving Support Vessel (DSV) market is structurally supplyconstrained, with only ~58 vessels currently operating worldwide. This severe shortfall is set to intensify as certain national oil companies restrict vessels older than 20 years from undertaking Inspection, Maintenance and Repair (IMR) work, effectively shrinking the addressable fleet further. Moreover, only two new vessels under construction versus mid-single-digit retirements are expected over the next three years. Net supply is likely to contract even though subsea activity strengthens, supporting higher day rates and pricing power.
SEAMEC is well positioned to cash in on this tightening market following its ~INR 7 Bn fleet rejuvenation programme, which has added modern, higher-spec vessels capable of commanding premium rates while reducing maintenance requirements and downtime. This has strengthened vessel economics and operating leverage, with standalone EBITDA margins expanding by ~900bps from 31.6% in FY23 to ~42.9% in FY26. We expect margins to remain above 40% over the medium term, Meanwhile, 3-5-year contracts which provide baseline utilisation, while RoFR and incumbent advantages reinforce contract continuity and earnings visibility.
Multi-Layered Levers Reinforce Structural Earnings Growth
Ageing offshore infrastructure, expanding acreage, and reserve accretion drive sustained subsea intervention, pipeline replacement, and platform upgrades. Long-term frameworks and turnkey wins have expanded its order book from ~INR 3.5 Bn to ~INR 8.4 Bn from FY23 to FY26. Complementing this, dollarlinked realisation provides an additional earnings lever, as INR is forecast to depreciate to 99/USD by FY28E and 101/USD by FY29E, uplifting revenues even at stable day rates. Adding another layer of earnings support, fully depreciated legacy vessels carry minimal depreciation, enabling incremental revenues to convert more efficiently into operating profit and PAT
Capital Discipline Compounds Operating and Shareholder Returns
SEAMEC’s disciplined capital allocation converts operating strength into higher shareholder returns, with fleet rejuvenation and planned maintenance driving lower costs, improved uptime and stronger operating leverage. Planned dry-docking has reduced costs from 5.2% of standalone revenue in FY24 to 4.1% in FY26, while fleet rejuvenation has lowered unscheduled off-hire from 45 days for legacy vessels to 12 days for modern assets. Meanwhile the 8 - 9% effective tonnage tax rate further supports cash generation
Optionality:
Further contracts from Middle East could substantially push the revenues and earnings higher than our expectation
Investment View:
Driven by the above-mentioned investment thesis, we expect Revenue / EBITDA / PAT to expand at a CAGR of 15% / 15% / 26% over FY26– FY29E. We, therefore, initiate coverage with a ‘BUY’ rating and a TP of INR 2,270, indicating an upside of 30.8%, based on our DCF valuation. Our valuation implies a P/E of 11.3x on FY29E EPS, considering an EPS CAGR of 26.3% over FY26–FY29E.
Key Risks:
Unplanned vessel downtime and operational disruptions could impact profitability, while INR appreciation may dilute currency benefits. Aggressive fleet expansion without adequate contract coverage could pressure utilisation, capital returns and balance sheet strength
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