Deep Industries (DIL)


(amit anam) #41

‘Deep Industries Limited’ has released its Annual Report for FY16.

The 26th Annual General Meeting (AGM) of the Company will be held on Thursday, 22nd September, 2016 at 10:00 am IST at t Hotel Planet Landmark, Ambli Bopal Road, off. S.G. Road, Nr. Ashok Vatika, Ahmedabad- 380 058, Gujarat.

For FY16 Annual Report, Click Here
http://www.deepindustries.com/DocFiles/94_Annual%20Report_2015-16.pdf

For more information, please refer to company website www.deepindustries.com


(Raj) #42

I will be traveling to Ahmadabad for the AGM. If anybody traveling there then we can meet up. Also if you have some questions for the management, please do let me know. I will try asking them.
Regards,
Raj


#43

Gas dehydration business - how much additional worth of orders does the company expect to garner in the next one year? Are any competitors gathering market share in this business?
Any plans for further dilution of equity/ take up additional levels of debt? What is the avg cost of debt?
Thanks in advance!


(VB) #44

Hi Raj,

I had a few questions for the management, with most of them being about the Prabha Energy subsidiary. It would be great if you could ask the following questions at the AGM.

  1. In the last concall, they mentioned that the company is expecting to do capex worth Rs350 odd crore in the next two years. Could we have a rough break down of this expected capex by vertical? How much would be used for the Prabha CBM block?
  2. Coming to the QIP, when do they plan to do it and how much equity will we be raising? Keeping the current market environment in mind, do they not want to do it at the earliest?
  3. According to their AR16, they had LT unsecured loans worth 42cr, which was not there last year. Going ahead, will they need to increase their unsecured borrowings? And will they be forced to pledge shares for incremental borrowings?
  4. What is the progress made at the Prabha Energy CBM block and how much revenue/profit will it be adding to the firm? What is the margin in this business? Also, just to understand the business better, how much capital has been deployed into this business over the years and what is the IRR? CBM clearly seems to be their next vertical that they are focusing on, although they plan to relinquish the remaining 2/3 blocks.
  5. In the AR, they mention that going ahead, they will be looking to acquire oil and gas acreages. Any colour on that front?
  6. Not the most important question during this growth phase for the company, but do they look to maintain a dividend payout ratio of close to 13%?

Thanks!

Disclosure: Invested


(Raj) #45

Thanks for the questions. I will add to my list. Some of your questions were answered by management in Q1 call though.

Regards,
Raj


(Meetesh) #47

While Deep has been getting orders from ONGC for gas dehydration what are the chances that private companies may also have to get their gas dehydrated ?? And if so will deep be able to benefit from the same.
Also the promoters have gone on record stating that they would like to increase their stake further. So are they planning for open market purchase or a pref issue


(JKS) #48

@raj1968 The stock has been in great form in the last few days. Keen to know what transpired in AGM and is there a link to the news from AGM, for this rise? Thx


(Meetesh) #49

The agm is scheduled for today. So hopefully we get some tit bits of information later in the day


(Meetesh) #50

Was anyone able to get any info about the issues discussed in the AGM ??


(Meetesh) #51

Hey Raj could you kindly post the discussions at the AGM ??


(Raj) #52

Hi Guys,

Just reached home after attending the AGM. Details will post tomorrow.

The key highlights are:

  1. Story is intact and growth will continue.
  2. Multiple triggers like bigger orders, CBM blocks and Marginal field exist.
  3. No QIP as of now.

Regards,
Raj


(Meetesh) #53

Thanks Raj. We shall eagerly await ur detailed post.


(bala) #54

Raj and I attended the AGM. AGM is supposed to start at 10 AM, we were there in the hall by 9:45, except the cs and registration staff nobody came. We met another investor friend in the hall. Suddenly the management and some 30 investors came in. Mgmt doesn’t inspire much confidence looking at their attire, stature etc. but looks like they are more of hands-on guys than market savvy type.

CS said something (welcome speech) which is hard to understand (thick local accent). Then the CEO read out a speech for 5 min. Some resolutions were read out which were promptly supported and seconded by some group of investors, everything was rushed, asked to put ballets in the box. meanwhile 2 invenstors asked questions in gujarathi where were answered by CEO in gujarathi. Management didn’t offer any Q&A session and meeting was declared over

While everybody was busy eating, packing biscuits, tea, we met the management on sidelines. CS was kind enough to arrange this 15 min special meeting with CEO, CFO. both the officers patiently answered our queries. They looked very confident and upbeat about the business and prospects. They looked reasonably assured and believable in their answers. looks like they are more comfortable giving offline answers than in agm, concalls.

Raj will give more details on the Q&A.

overall my impression is they will get more orders soon and funding is a problem. They have good execution skills, but raising debt qip is a never ending process. every new order needs capex, that too if they get more orders in a short period of time. current 860 cr orders are fully capexed, new orders as and when they come need capex, for gas dehydration their asset turns is 1.0, for compression 0.6, so we can do the math based on orders to be executed in a year.

Disc : holding since last 3 months


(Meetesh) #55

Thanks for your update Bala. Did they inform any pipeline of orders or L1 status in any ??

Shall also await the update from Raj .

I also am happy to be invested in a honest management than a tech savi one that probably takes its investors for a ride. And hopefully that’s the impression that you got after meeting them.

Thanks once again


(Raj) #56

Q&A the Deep Management:

1.What is the current order book? What is the quantum of order for which we have bid and are L1?

Ans: 845Cr as on 1st July. No tender has been opened since then.

2.Can we get a split of first time orders and repeat orders?

Ans: We don’t have a split. Recent GDS (Gas Dehydration Services) and Drilling Rig Services are first time orders. In case of Gas Compression and Work Over Rig it is a mix of both.

3.Deep has grown 70% in FY16. You have already guided for a similar growth in FY17. What is the projected growth rate from FY18 and beyond based on the current order scenario?

Ans: The high growth is due to the big orders won in GDS and Drilling Rig Business. This is primarily an order book driven business. However, FY18 growth can be 20-25% if we assume no new order.

4.According to their AR16, they had LT unsecured loans worth 42cr, which was not there last year. Going ahead, will they need to increase their unsecured borrowings? And will they be forced to pledge shares
for incremental borrowings?

Ans: LT unsecured loans worth 42cr has been infused as quasi equity as margin towards capex of new projects. If there is no additional capex in FY17, this loan will be reduced. We do not see any situation going forward where we need to pledge our shares.

5.Being in growth phase do you wish to maintain a low dividend payout ratio?

Ans: Not necessary. We increased the payout to 15% from 10% last year. In future we may look to increase it further.

6.How much of the capex is funded by internal cash vs the dilution? When is this trend going up in favour of more cash as business is generating cash?

Ans: Future capex depends on award of contracts. Our entire capex plan is based on confirmed order. Hence it’s difficult to say the exact proportion at this point of time.

7.Coming to the QIP, when do they plan to do it and how much equity will we be raising?

Ans: Last year we attempted QIP but couldn’t get through because of valuation. This year we do not have any plans for QIP, as majority of capex has been managed with bank debt and internal accruals.

8.Keeping the current market environment in mind, do they not want to do it at the earliest?

Ans: We believe still we aren’t getting correct valuation of our stock, hence as of now we are not keen to go for QIP.

9.In the last conference call it was told by management that gas dehydration, rigs services asset turns at 0.8 while for gas compression it is 0.6. But as per balance sheet numbers its 0.3. Can you please
do let us know how it is being calculated?

Ans: We need to check this because as per our understanding Receipt of almost 100Cr from Gas Compression Services in FY16 on a fixed asset of 183Cr comes to asset turn of 0.55

CBM Blocks:

1.What is the progress made at the Prabha Energy CBM block and how much revenue/profit will it be adding to the firm? What is the margin in this business? Also, just to understand the business better, how much capital has been deployed into this business over the years and what is the IRR? CBM clearly seems to be next vertical that we are focusing on.

Ans: We are in active discussion with one of the PE fund for investment up to $20 Million in PEPL and till the time of signing the term sheet, we will not be able to share any more details.

2.When can we expect the divestment of 40% on one CBM block in Prabha Energy to complete? What is the expected value? What is reason for divestment and do we have any more divestment plans?

Ans: As above.

3.In the last concall, it was mentioned that the company is expecting to do capex worth Rs350 odd crore in the next two years. Could we have a rough break down of this expected capex by vertical? How much would be used for the Prabha CBM block?

Ans: As above.

4.We understand that there are plans to relinquish the remaining 2/3 blocks? Are they unviable?

Ans: Not exactly. We have surrendered one of the CBM blocks of Godavari North, as PEL was not through due to overlapping issue in between MOPNG & Coal ministry in the said block.

5.In the AR, it is mention that going ahead, they will be looking to acquire oil and gas acreages. Any colour on that front?

Ans: It’s a general statement where we may look for better opportunities like CBM North Karanpoura in our subsidiary PEPL.

Gas Dehydration:

1.As of now how much % of total gas going through the national grid is being dehydrated? By when the rest of the gas is expected to be dehydrated? Is there any statutory deadline for the same?

Ans: No such data is available in public domain. There are number of tenders are expected to come out for various assets.

2.Besides ONGC who are the other prospective customers for dehydration and how much is the opportunity size?

Ans: Besides ONGC, Oil India and Cairn Energy are prospective customers for dehydration. Opportunity size is difficult to spell out as of now.

3.Are there any private players (eg. Crain energy), who can be a prospective customer? What is the size of opportunity and by when we can expect movement in this direction?

Ans: As above.

4.Who are other players in dehydration business? What is our market share in onshore dehydration?

Ans: DIL is the only company who has successfully mobilised GDU plants at 9 different locations. DIL has been awarded 3 contracts out of total 5 awarded so far.

Thanks to @bandlab1, @VB1 and @Meetesh for getting a decent list of questions.


(Raj) #57

Thanks Bala. I will add some of my observation/comments:

  1. The company seems to be in a sweet spot and growth will continue for several years with new orders in Gas Dehydration/Oil Rigs. Though the 70% growth rate will moderate down from FY18 onward. This is without considering the impact of their oil and gas assets. FY18 onward we may have positive surprises.
  2. Overheard some fellow investor that they have bid 500Cr worth contracts. Though management didn’t talk of any numbers.
  3. Management said that they will keep the Debt/Equity ratio at 1:1. So expect dilution once new order comes as they will need further capex.

Regards,
Raj

PS: Invested and no trading in last 90 days.


(Meetesh) #58

Thanks Raj for the detailed Q n A. This information is something that we can’t derive from any online searches or other forums. I am greatful for you and Bala to have gone to the AGM and given us such valuable and comprehensive information.


(Meetesh) #59

Congrats Raj and Bala for having got all the valuable information. It feels good to see the stock rise by 10% today and hopefully over the next few years we can see it touch greater heights


Sintex (Demerged) - textile business
(techno219) #60

What the strategy now stock is already up by 10% with volume boost…


(c342xxi) #61

The stock has broken its all time high of Rs 206, just recently. There’s no upper resistance anymore. Watch out for 206 becoming a support in the future when the stock corrects (whenever it does).

If it bounces back from 205-206, great! If it continues down, profits can be booked. You might then enter it again when it overcomes 205-206 to go upward again.