Dorian LPG (LPG, Financial) is a LPG shipping company which owns and operates very large gas carriers (VLGCs). The company currently has a fleet of four LPG carriers of which three are modern VLGCs (82000cbm) and one small pressurised vessel (5000cbm). While the company currently has a small fleet size, delivery of 19 new ECO friendly fuel efficient vessels by January 2016 will make Dorian the biggest owner and operator of VLGCs.
The company has issued its IPO on May 8, and since then there has been a surge of 16% in its stock price. This increase in just two months is attributed to strong growth potential of the company. In this article I will discuss about the key revenue driver of the company and its expected revenue and EBITDA upside in fiscal 2015 and 2016.
Key Revenue Drivers
Modern and Attractive Fleet
Dorian currently has a fleet of four very large gas carriers but with the delivery of an additional 19 VLGCs, the company is expected to own the most modern fleet in the industry. All the 19 vessels are ECO friendly vessels with advanced fuel efficient and emission reducing technologies.
On the completion of the delivery of these 19 vessels, 86% of the fleet will consist of fuel efficient vessels. According to the company’s estimates, the ECO vessels will have an average fuel savings of $4000 per day when compared to non-eco friendly vessels. Considering this cost reduction it is likely to have a significant impact on the company’s EBITDA margin.
Also with the delivery of these vessels by January 2016, 100% of the company’s fleet will be operating as a sister ship. The advantage Dorian will thus have over its peers is that there will be more chartering opportunities.
This is because companies or charterers prefer sister ships due to the advantage of inter changeability and the flexibility of assigning voyages associated with these sister vessels. The delivery will also reduce the average age of the fleet to 1.6 years against the average industry VLGC fleet age of 10 years. Younger fleet would thus have a competitive advantage over peers Teekay Coporation (TK, Financial) and Golar LNG Ltd (GLNG, Financial), the company will thus be in a better position to demand higher day rate.
Revenue and EBITDA forecast
This section will deal with the revenue upside the company would witness with the delivery of 19 new vessels by the end of 2016.
For fiscal 2014, I have assumed the company would continue to operate at 99.3% efficiency. Also EBITDA margin of 49% is considered similar to the December 2013 margin.
| Vessels | Day rate in $ | No.of days | Efficiency | Revenue in $ million |
| Captain Nicholas ML | 31500 | 365 | 99.30% | 11.5 |
| Captain John NP | 31500 | 365 | 99.30% | 11.5 |
| Captain Markos NL | 31500 | 365 | 99.30% | 11.5 |
| Grendon | 10500 | 365 | 99.30% | 3.8 |
| Comet | 31500 | 180 | 99.30% | 5.6 |
| Corsair | 31500 | 180 | 99.30% | 5.6 |
| Corvette | 31500 | 90 | 99.30% | 2.8 |
| Total | 52.3 | |||
| EBITDA | 25.6 |
For fiscal 2015, following are the assumptions:
- Considering current spot market rate of $700,000 and $1,200,000 (average of 950,000) and assuming that it will increase by 15% year on year, spot rate for 2015 would be $1,09,2500 monthly
- Day rate of $35000 compared to the projected spot rate is fair and conservative
- 99.3% efficiency is considered based on the December 2013 results
- I have also assumed a conservative 5% increase in EBITDA margin of 2015
Thus, considering the above assumptions we would have revenue of $170 million in fiscal 2015, up by 225% from fiscal 2014. Similarly there will be 258% increase in the company’s EBITDA. This is a high jump which will have its effect on the stock upside as well.
| Vessels | Day rate in $ | No.of days | Efficiency | Revenue in $ million |
| Captain Nicholas ML | 35000 | 365 | 99.30% | 12.7 |
| Captain John NP | 35000 | 365 | 99.30% | 12.7 |
| Captain Markos NL | 35000 | 365 | 99.30% | 12.7 |
| Grendon | 35000 | 365 | 99.30% | 12.7 |
| Comet | 35000 | 365 | 99.30% | 12.7 |
| Corsair | 35000 | 365 | 99.30% | 12.7 |
| Corvette | 35000 | 365 | 99.30% | 12.7 |
| NB#4 | 35000 | 270 | 99.30% | 9.4 |
| NB#5 | 35000 | 270 | 99.30% | 9.4 |
| NB#6 | 35000 | 270 | 99.30% | 9.4 |
| NB#7 | 35000 | 270 | 99.30% | 9.4 |
| NB#8 | 35000 | 180 | 99.30% | 6.3 |
| NB#9 | 35000 | 180 | 99.30% | 6.3 |
| NB#10 | 35000 | 180 | 99.30% | 6.3 |
| NB#11 | 35000 | 180 | 99.30% | 6.3 |
| NB#12 | 35000 | 90 | 99.30% | 3.1 |
| NB#13 | 35000 | 90 | 99.30% | 3.1 |
| NB#14 | 35000 | 90 | 99.30% | 3.1 |
| NB#15 | 35000 | 90 | 99.30% | 3.1 |
| NB#16 | 35000 | 90 | 99.30% | 3.1 |
| NB#17 | 35000 | 90 | 99.30% | 3.1 |
| Total | 170.1 | |||
| EBITDA ( 54%) | 91.9 |
Based on similar assumptions and with the completion of delivery of all the 19 vessels I am of the opinion, Dorian LPG will have a considerable revenue upside in fiscal 2016 as well.
Conclusion
Dorian LPG currently has only four vessels but as discussed with the delivery of further 19 vessels by 2016, the company will witness high jump both in its revenue and EBITDA numbers. Thus, considering the company’s performance and availability of one of the best fleet in the industry I am of the opinion, Dorian LPG can be a good long term investment.
