Shiv-Vani Oil & Gas:: PLAY ON CHEAP VALUATION ::IFCI research,

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PLAY ON CHEAP VALUATION
We initiate coverage on Shiv-Vani Oil & Gas Ltd (SVOG) with a Buy rating and a target price of Rs328. SVOG’s full asset utilization provides revenue visibility over FY12-FY13. With crude above USD100/bbl, we expect surge in drilling activities and thus high day rates for SVOG’s existing assets. New order from ONGC would act as catalyst to earnings growth. We expect SVOG to trade above replacement value of its assets over next 12 months.
 Full asset utilisation for next two years: SVOG’s entire fleet of 40 rigs is deployed for FY12 and FY13 and hence full asset utilisation provides revenue visibility over the next two years. This is also reflected in the company’s healthy order book of Rs28bn, which is 1.8x its FY11 revenues.
 Day rate inflection point seems near: With oil price above USD100/bbl, E&P focus will re-shift to onshore oil drilling and thus we expect surge in the onshore rig count and day rates over CY11-CY13. As ONGC contract for eight rigs to get completed by FY13, we expect these rigs to get deployed at 10% higher day rate of USD28,000 per day.
 Huge onshore opportunity: The pending work under NELP III-VII offers USD3bn plus onshore opportunity from ONGC and OIL. We expect SVOG’s share in the opportunity to be in excess of USD221mn each year during FY12-FY15, translating into market share of 30%.
 New orders from ONGC – key catalyst: SVOG’s current order bid book stands at Rs30bn. With tender activity to accelerate at ONGC post its FPO and its commitment for capital expenditure of Rs330bn in FY12 and FY13, we expect new orders of Rs12bn by 4QFY11 at historical bid success rate of 40% for SVOG.
 Valuation and recommendation: We have valued SVOG at 4.8x its FY13E EV/EBITDA, thus arriving at target price of Rs328. The stock is trading at around 80% of replacement value and at 50% discount to its five year average one year forward valuations