Deep Industries (DIL)


(Rohit) #82

@bandlab1, @VB1, @raj1968 and @Meetesh

Why is the company not paying it’s far share of taxes?
From annual report FY 2015-16 - Pg 59 - P&L - Total tax expense - aprox 20 crores
Pg 60 - Cash Flow from operations - Actual cash tax paid during the year 3.9 crores.

Same for the previous year - Tax payable per income statement (Accounting for changes in differed taxes) 12 cr.
Actual cash tax paid (from CFO) 3.7cr.

So basically, profit before tax almost doubled from 33 cr to 61 cr, yet these guys somehow pay just 20 lakh rupees extra in cash taxes! How?


#83

QIP of 125Cr at 239Rs per share (with a possible 5% discount). This should amount to almost 20% dilution? They had mentioned that they would be going for QIP only if new orders come in. But there have been no order announcements yet. Any comments? Thanks.


(Meetesh) #84

Deep Ind Hits an all time high. Today we will know who are the investors who got in through QIP.


(paresh.sarjani1) #85

Deep Industries at all time highs again…
This is going superbly…

Thanks @kannu for initiating this


(JKS) #86

Q3 numbers are in. There seems to be a smudge in the Fax against current qtr EPS but you can X check it with NP figures. Concall is tomorrow @1030 AM
http://www.moneycontrol.com/stocks/reports/deep-industries-standalone-financial-results-limited-review-report-for-december-31-2016-6148321.html


(Whipsaw) #87

@KS16 Lower EPS - may be due to the QIP in Dec 2016. http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/F796E7FC_7AA3_4245_B9FC_CBA5E873E900_093916.pdf


(JKS) #88

Investor presentation
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/325FC1EC_6331_4A37_A58B_58D8DD87AE30_180205.pdf


(JKS) #89

This is to give a better view of cash EPS, because of the smudge in the scan
This one is from BSE site


(Mridul) #90

Good developments in this qtr overall -

Excerpt from presentation…

  1. Successfully executed QIP to raise Rs. 63.8crs. Shares issued at Rs. 228/- per equity share. Funding to give flexibility to capitalize on opportunities available in the Oil & Gas Services space.

  2. Executed definitive documents for a PE Investment of USD 20mn from Tridevi Capital Partners in to Prabha Energy Private Limited. Deep Industries to hold 51% in Prabha Energy post investment. Funds to be utilized for development and production of Natural Gas from CBM block located in Northern Karanpura coalfields where Prabha Energy holds 25% participating interest.

  3. Strengthened Balance Sheet with improved earnings visibility and equity infusion in form of QIP and PE Investment in Subsidiary have led to Upgrade in Credit Rating by CARE. “A” and “A1” for Long term and Short Term Bank Facilities


(VB) #91

Q3 conference call highlights :-

  1. Q4 guidance: Expect Net debt to touch 240cr, decent revenue growth qoq.
  2. Order book : 795cr (not including the Cairn order). Split: Gas Compression- 24%, Rigs- 28%, Gas Dehydration- 48%. Competition should not hurt the 55-58% EBITDA margin.
  3. Cairn order: 36cr Gas compression order, to be executed in 1 year. There exists a provision to extend this contract by 6 months. Capex required: 27cr, which will be done in Q4. The management expects the work to be completed in 2-3 years, so there is a high probability of the contract getting renewed.
  4. E&P division: Production should start in 2-3 years. The capex required for the development of this CBM block is US$100mm( Deep’s share is US$25mm), which is taken care of due to the capital infused by the PE fund.
  5. FY18 guidance: Growth >30% y-o-y assuming no new orders won. Capex plans for the year is 270-280cr (with rigs contributing around 100cr), based on the management’s expectation of order wins. Assuming an asset turnover of 0.6, this should lead to a revenue growth by ~170cr in FY19. Part of this could be realised in the later quarters of FY18 itself.
  6. The capex of 280cr will be funded 70% by debt (196cr), while the rest will be through internal accrual. The company shall maintain its D/E ratio around 1.
  7. Industry outlook: Compression sector should continue to grow by at least 30%, partly fuelled by the fact that the machinery of PSU majors is becoming old and instead of buying new equipment, they will prefer outsourcing it. A lot of new gas blocks are being discovered, and as and when they start producing, the dehydration outsourcing sector will incrementally grow. 4-5mmscmd worth contracts to come up for bidding within the next 6 months.In the rigs division, the government’s focus on oil exploration has spurred the sector, along with the exit of some major contractors.
  8. Advantages of outsourcing dehydration units over operating it: i) Huge revenues are linked to the gas pipeline for the company. Outsourcing mitigates the risk because of the penalty clauses for the contractors ii) Firms prefer sticking to their core competence and would not prefer entering this space

Concerns:

  1. 70% of the debt is dollar denominated. Will need to question the hedging strategy used by the firm. Wild INR fluctuations could drastically hamper the company.
  2. Outsourcing and escalation risks. What are the contingencies in case of any mishaps on the dehydration sites?

The attached excel sheet is a rough estimate of the financials for the next 2 years, based on the management guidance given on this call.

Based on these estimates, Deep Industries looks like a very compelling bet.

It was good to hear you on the call @raj1968

Disc: Invested

Deep Industries Management Guidance.xlsx (19.6 KB)


(Raj) #92

Thanks @VB1 for capturing the details very well.

One more risk I wish to highlight is the contract risk. I read somewhere the contractual clauses for dehydration business is very harsh.They have to pay a fine of 1Cr/day if the equipment breakdown is for more than 15 days in a year. Also they have to pay heavy LD(Liquidated Damages) if they do not perform as per the expectation.

But overall I am quite positive. For next 3 years they should do very well unless there are any major contractual issues.
Regards,
Raj

Disc: Invested. No trading in last 90 days.


(gautham1) #93

hi @raj1968
If i am not wrong, you were investing mainly in consumer facing businesses. Over the past few years, you seemed to have changed the strategy and moved on to b2b type of companies. How do you build conviction in these type of companies.?. Also, how do you first spot them?. Is it by running some screeners?. Would be of great help if you could share your experience. thanks


(Raj) #94

Hi @gautham1,

You are right, I was into consumer facing businesses mostly. However, they ran very fast and became overvalued(in my views) to a great extent. Also looking back at the rally in Industrial and Cyclical companies forced me to rethink. Gradually I exited from richly valued consumer companies.

I do not use screener much. In fact I do not know to use it to spot opportunities using screener. I get ideas from various sources like TV, magazine articles, blogs and try to see a visible growth and confirmed order book for next 2-3 years besides sector growth. My feel is that they will provide better returns for next couple of years.

I have changed the horses as I felt it was necessary. Hope this helps.

Please look at video below. I respect this gentleman very much.

Regards,
Raj


(gautham1) #95

thanks a lot @raj1968 for sharing your views. appreciate it. you are right about the valuation. thats why i consider 2014 a bad year because one had to sell even though the companies were doing fine.
I am not sure of tv, magazine etc. I think most of the time there will be vested interest.
Anyways good to know that new theme has worked for you. Thanks for that video. I too admire him.


(Meetesh) #96

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=3399389c-b463-483a-a85a-fbf9e6465faf


(Meetesh) #97

The management of deep ind is now meeting analysts in the US including fidelity. A very positive sign of things to come


(Meetesh) #98

DEEP INDS in FOCUS

In a boost to firms like Deep Inds, Reliance
Industries and ONGC, the oil ministry has moved a proposal to
the Cabinet for allowing pricing freedom for natural gas
produced from coal seams.

The ministry has proposed to the Cabinet that coal-bed
methane (CBM) gas producers be given pricing freedom and
allowed to price the fuel at market rates, sources privy to
the development said.

This will help operators quickly put in production the
CBM blocks they hold and reverse the trend of investors
relinquishing coal-seam blocks due to viability issues of
current pricing.

The sources said the CBM gas pricing policy proposed to
the Cabinet is in line with the recently unveiled regime
governing small and marginal oil and natural gas blocks.
The government had recently auctioned small and marginal
discovered oil and gas fields by promising investors complete
pricing, marketing and production freedom under a revenue
sharing contract agreement.

Pricing freedom would help quickly ramp up CBM gas
production to targeted 5.77 mmscmd within a year, they said.


(Meetesh) #99

The cabinet has given its approval. Excellent times ahead for Deep Industries


#100

If anyone have subscription then this could be good read…

Do post your analysis after reading.


(Mridul) #101

Regarding Deep being an asset intensive business has been discussed on the thread. This is into leasing business and asset turns will be low. If they get more orders, they will have to buy more equipment to service those simultaneously.