SVOG (Maintain Buy) - 1QFY12 - Result Update (IFIN) -IFCI research,

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Play on valuation, Maintain BUY

Results above expectations: Shiv-Vani Oil & Gas’ (SVOG) 1QFY12 results were above our expectations, with revenue at Rs4,086mn (up 3% YoY), EBITDA margin at 46.2% (up 255bps YoY) and PAT at Rs683mn (up 10% YoY). Improvement in margins and a lower effective tax rate boosted the bottom line.     

Order book position at Rs27bn: SVOG’s order book stood at Rs27bn, almost flat sequentially. Its order book includes orders worth Rs17bn from drilling, Rs6bn from Oman, Rs4bn from CBM, and Rs1bn from seismic survey, providing revenue visibility over the next two years.

Small order wins in 1QFY12: SVOG expects total order inflow at Rs4-5bn in FY12; in 1QFY12, it secured small orders of Rs500mn from ONGC (for deployment of a 1,000HP rig) and Rs500mn from GAIL (for seismic survey).

Debt repayment to reduce D/E ratio to 1.4x in FY13: Given the limited capex requirement for execution of existing orders, we expect SVOG to generate aggregate free cash flow of Rs4,346mn in FY12-13. Hence, we expect it to repay Rs4,000mn of debt in the period. Consequently, its D/E ratio should improve to 1.4x in FY13 from 2x in FY11.

Valuations and Recommendation: We maintain our estimates and Buy recommendation with target price of Rs328 on the stock given its strong earnings visibility and compelling valuations. At CMP, SVOG trades at 2.9x FY13E EPS and 3.8x EV/EBITDA. A key potential trigger for the stock would be announcement of large orders and re-payment of non-FCCB debt.