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SHIV-VANI OIL AND GAS EXPLORATION
Lower tax rate boosts PAT
Revenue jumped 6.9% Y-o-Y; consolidated order book at INR 30 bn
Shiv-Vani Oil and Gas Exploration Services’ (SVOG) Q3FY11 consolidated revenue, at
INR 3.8 bn, jumped 6.9% Y-o-Y and 30.4% Q-o-Q, as the quarter saw optimum
utilisation of the company’s assets with all rigs under operation. Its consolidated order
book as on December 31, 2010, stands at INR 30 bn (INR 18 bn from drilling, INR 1
bn from seismic, INR 4 bn from CBM, and balance INR 7 bn from the Oman order).
EBITDA margin soars to 48.2%; PAT higher due to lower tax expenses
Q3FY11 EBITDA margin, at 48.2% (+257bps Q-o-Q and +372bps Y-o-Y), was ahead
of our expectation (44.5%). Management has maintained its guidance of ~44-45%
EBITDA margin for FY11/FY12. Depreciation expenses, at INR 409 mn, rose 32.8% Qo-
Q and 42.9% Y-o-Y due to impact of capitalisation of all the remaining rigs.
Tax rate at 2.8% was as subsidiaries accounted for 95% of PBT (lower tax rate in
subsidiaries). As per the management, the tax rate is expected to continue at similar
levels for the next 2-3 quarters. Interest costs, at INR 635 mn, jumped 8.3% Y-o-Y
but dipped 20.1% Q-o-Q due to higher interest expense during the previous quarter.
Overall, SVOG’s consolidated PAT, at INR 700 mn, surged 21.0% Y-o-Y and 114.8%
Q-o-Q primarily on back of higher EBITDA margins and lower tax expenses.
Outlook and valuations: Positive; maintain ‘BUY’
SVOG’s Q3FY11 PAT was above expectation due to lower tax expenses. We are
broadly maintaining our FY11 and FY12 earnings estimates due to complete
deployment of all the company’s rigs. We maintain our bullish stance on crude and
thus also anticipate oil & gas companies to increase their FY12 capex budgets
benefitting O&G ancillary players like SVOG. We have a positive outlook on crude
and SVOG will be a key beneficiary in the Indian onshore services space as industry
activity is buoyed by pending NELP commitments and ONGC’s and Oil India’s capex
outlay.
We are broadly maintaining our March 2012 fair value (based on DCF methodology)
at INR 558/share offering a 123.5% upside from the current level. At CMP of
INR 250/share, the stock trades at P/E of 4.3x FY12E earnings and at EV/EBITDA of
4.2x FY12E. We maintain ‘BUY’ recommendation on the stock.
Company Description
SVOG commenced operations in 1990 by providing shot-hole drilling services to ONGC.
Since then, it has evolved into an integrated onshore oilfield service provider and now
dominates the Indian upstream onshore services space (especially sub-segments like
onshore seismic and drilling). Among domestic service providers, SVOG owns the largest
fleet of both onshore seismic (10 crews) and drilling (40 rigs) assets.
Key clientele: ~90% of the company’s revenues come from ONGC and Oil India. Asset
base: SVOG’s extensive asset base spread across the country gives it strong competitive
advantage against peers.
Investment Theme
SVOG is expected to be a key beneficiary in the Indian onshore services space, as
industry activity is buoyed by better hydrocarbon prices, pending NELP commitments and
capex outlay by ONGC and Oil India. Further, the company’s large order book (supported
by new assets) ensures favorable earnings, going forward.
Key risks
Delay in contract execution/ delivery of new assets as earlier it had experienced some
delays in rig supply for ONGC contract.
Significant dependence on ONGC and Oil India.
Higher operating costs could limit margins.
Higher competition and USD/INR volatility.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SHIV-VANI OIL AND GAS EXPLORATION
Lower tax rate boosts PAT
Revenue jumped 6.9% Y-o-Y; consolidated order book at INR 30 bn
Shiv-Vani Oil and Gas Exploration Services’ (SVOG) Q3FY11 consolidated revenue, at
INR 3.8 bn, jumped 6.9% Y-o-Y and 30.4% Q-o-Q, as the quarter saw optimum
utilisation of the company’s assets with all rigs under operation. Its consolidated order
book as on December 31, 2010, stands at INR 30 bn (INR 18 bn from drilling, INR 1
bn from seismic, INR 4 bn from CBM, and balance INR 7 bn from the Oman order).
EBITDA margin soars to 48.2%; PAT higher due to lower tax expenses
Q3FY11 EBITDA margin, at 48.2% (+257bps Q-o-Q and +372bps Y-o-Y), was ahead
of our expectation (44.5%). Management has maintained its guidance of ~44-45%
EBITDA margin for FY11/FY12. Depreciation expenses, at INR 409 mn, rose 32.8% Qo-
Q and 42.9% Y-o-Y due to impact of capitalisation of all the remaining rigs.
Tax rate at 2.8% was as subsidiaries accounted for 95% of PBT (lower tax rate in
subsidiaries). As per the management, the tax rate is expected to continue at similar
levels for the next 2-3 quarters. Interest costs, at INR 635 mn, jumped 8.3% Y-o-Y
but dipped 20.1% Q-o-Q due to higher interest expense during the previous quarter.
Overall, SVOG’s consolidated PAT, at INR 700 mn, surged 21.0% Y-o-Y and 114.8%
Q-o-Q primarily on back of higher EBITDA margins and lower tax expenses.
Outlook and valuations: Positive; maintain ‘BUY’
SVOG’s Q3FY11 PAT was above expectation due to lower tax expenses. We are
broadly maintaining our FY11 and FY12 earnings estimates due to complete
deployment of all the company’s rigs. We maintain our bullish stance on crude and
thus also anticipate oil & gas companies to increase their FY12 capex budgets
benefitting O&G ancillary players like SVOG. We have a positive outlook on crude
and SVOG will be a key beneficiary in the Indian onshore services space as industry
activity is buoyed by pending NELP commitments and ONGC’s and Oil India’s capex
outlay.
We are broadly maintaining our March 2012 fair value (based on DCF methodology)
at INR 558/share offering a 123.5% upside from the current level. At CMP of
INR 250/share, the stock trades at P/E of 4.3x FY12E earnings and at EV/EBITDA of
4.2x FY12E. We maintain ‘BUY’ recommendation on the stock.
Company Description
SVOG commenced operations in 1990 by providing shot-hole drilling services to ONGC.
Since then, it has evolved into an integrated onshore oilfield service provider and now
dominates the Indian upstream onshore services space (especially sub-segments like
onshore seismic and drilling). Among domestic service providers, SVOG owns the largest
fleet of both onshore seismic (10 crews) and drilling (40 rigs) assets.
Key clientele: ~90% of the company’s revenues come from ONGC and Oil India. Asset
base: SVOG’s extensive asset base spread across the country gives it strong competitive
advantage against peers.
Investment Theme
SVOG is expected to be a key beneficiary in the Indian onshore services space, as
industry activity is buoyed by better hydrocarbon prices, pending NELP commitments and
capex outlay by ONGC and Oil India. Further, the company’s large order book (supported
by new assets) ensures favorable earnings, going forward.
Key risks
Delay in contract execution/ delivery of new assets as earlier it had experienced some
delays in rig supply for ONGC contract.
Significant dependence on ONGC and Oil India.
Higher operating costs could limit margins.
Higher competition and USD/INR volatility.
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