SHIV-VANI OIL-Lower seismic revenues dent numbers- Edelweiss

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􀂄 Revenue dips 27% Q-o-Q; consolidated order book at INR 30 bn
Shiv-Vani Oil and Gas Exploration Services’ (SVOG) Q2FY11 consolidated revenues, at
INR 2.88 bn, dipped 9.9% Y-o-Y and 27% Q-o-Q, due to lower revenues from the
seismic segment (INR 560 mn compared to INR 1.6 bn in Q1FY11). Seismic survey
crews, which contribute ~25% to the company’s top line, were mostly deployed in the
north eastern region during the quarter and heavy monsoons in the region dented
revenue. Q2FY11 saw optimum utilization of the company’s assets with all rigs under
operation including five deployed in the US and Middle East which are working on spot
basis.


􀂄 EBITDA margin higher at 45.6%; PAT lower due to higher interest costs
Q2FY11 EBITDA margin, at 45.6% (+1.9% Q-o-Q and +3.5% Y-o-Y), was slightly
ahead of our expectation (43%). Management has continued to maintain its guidance
of ~44-45% EBITDA margin going forward. Depreciation came in 21% lower Q-o-Q
due to balancing adjustments for H1FY11 after three rigs were capitalized in the
previous quarter. Tax expenses dipped to INR (23.9) mn due to deferred tax
adjustments (MAT credit entitlement of INR 62.9 mn) and lower current taxes on
account of dip in seismic revenues. Tax rates are expected to normalize to ~18-20%
from the next quarter. Interest costs, at INR 795 mn, jumped 36% Q-o-Q and 94.8%
Y-o-Y due to higher interest being expensed on rigs which were capitalized earlier and
also interest payments on FCCBs raised during the quarter. Interest costs per quarter
are expected to come down to INR 700 mn in subsequent quarters. Overall, SVOG’s
PAT, at INR 326 mn, dipped 44.3% Y-o-Y and 49.4% Q-o-Q primarily on the back of
dip in seismic revenues and higher interest expenses.

􀂄 Outlook and valuations: Positive; maintain ‘BUY’
SVOG’s Q2FY11 revenues/PAT were below expectations, although EBITDA margins
were broadly in line. We are revising down our EPS estimates for FY11 and FY12 to
account for higher interest expenses and depreciation. With crude prices remaining
stable at a higher range, we expect 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 rolling forward our valuations to March 2012 from
March 2011 earlier and have revised SVOG’s fair value (based on DCF methodology)
to INR 557/share from INR 528/share earlier. At CMP of INR 400/share, the stock
trades at P/E of 6.9x FY12E earnings and at EV/EBITDA of 5.3x FY12E. We maintain
‘BUY’ recommendation on the stock.