Too much client concentration risk-ONGC 2. Business with PSU generally increases late receivables. Trade receivables-in 2016 it is 56 cr vs 2015 it was 26 cr . Generally PSU does not follow Payment terms and conditions, Some times it may be forced to write off receivables too.
Capital Intensive business, low utilization of equipment leads to higher losses.
4.D/E is increasing(doubled in this year) which is uncomfortable.
Payment policies by PSUs and the govt is fast changing under the Modi govt and high capital intensity acts as a deterrent for other companies to enter this segment. The potential for gas dehydration as well as production from their fields is not yet factored into the price . As stated by them in the investor presentation one of their fields will go on stream in fy18 . I also expect them to bid and win a few more blocks when the marginal fields are put up for auction later this year.
the fixed asset turnover is still between 0.3 and 0.4. I would be very wary of it as equity dilution is imminent and debt would increase consistently from here.
Asset turnover have improving trend and so will be roe( assuming margins being where they are).
They were heavily investing for last 4-5 years and now the benefits will be seen in coming years.
Disc: invested
They have completed their capex for the present order book of 850 cr. They will need fresh capex only if they secure new orders. Infact they see a healthy pipeline of orders in the next two months or so. Only ongc has started gas dehydration and other PSUs will soon follow suite
Total debt - 310cr
Capex (current q) - 68cr
orderbook -845crâŚto be executed in next 2-3 years. No capex required for current order book. Will do capex for new orders.
order breakup:
Compression - 30%
Rigs - 30%
Dehydration - 40%
order added (current q) - 35cr
capital allocation:
45cr allocated in E&P, rest in service ( no breakup among services).
Capital is allocated based on orders and not planned.
Amalgamation of subsidiaries to avoid double taxation , DDT.
Margin profile - 55-58% at company level. (not available at segment level).
Revenue geography = Domestic/Export : 100/0
Revenue from E&P can be expected from 2018-19. First lever will be CBM.
orders are of repeat nature.
may divest 40% CBM block under praba(subsidiray) for 130-140cr.
You have summarized the concall perfectly. They are in advanced talk with some cos for stake dilution in their CBM block which will get them approx 150 cr and this should happen in this year itself. I think the valuation of all their blocks put together will be far higher than their present market cap. Presently it is reflecting only their services business . I expect the stock to hit the 1000 Rs mark in the next 5-7years
Though the company is on growth trajectory there are many risks associatedâŚ
execution risk
high debt risk(As business is capital intensive)
high fixed cost risk( operating leverage is double edge sword )
etcâŚ
Even i have been tracking and invested in the company. The results are in line from what was expected. Full year they seem of increase there profits by 60% after a increase in profits by 100% last FY.
Rating is from CRISIL & debt raised from HDFC Bank which has most stringent norms. Debt Equity is 1.8 times which is not high. Margins of 55-60% which is awesome. Promoters raising stake continuously.
Risks ##
ONGC is major contributor only. 75% revenue comes from single client
Promoter past is questioned
Unattractive sector
Donât know but market is not rewarding this company.
asset monetization plans should certainly help. markets shall wait for clarity on equity dilution (if any) and traction on debt and asset turns which are far above comfort levels.
Post the stupendous results deep Ind saw a correction in line with the markets. Now at the first signs of normalcy in the markets Deep has bounced back to levels above 200.
If the markets stay positive for a few more days deep would have easily crossed itâs 52 week high of Rs 215.70. Next in line will be itâs all time high of Rs 271 which also can be very well crossed in this financial year itself.
A few more order wins in the next few months and a repeat of its Stellar performance even in the next qtr results will convert a lot of naysayers.
