Cost of acquiring Dolphin debtor is insignificant as far as I know.
So doesn’t matter if they don’t recover.
However if they recover, it would be freebie for them
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That’s what I am saying. Recovering those receivables would increase Consolidated Cash Flow from Operations. So any new person who sees the company’s cash flow trend on screener may get deceived seeing the growing cash flow.
Now one may ask, what the problem? Buying distressed companies, recovering receivables, increasing cash flows, win-win.
I"ll ask you some questions:
- If this is a strategy, then why is it in place? Is the existing business model not capable enough to grow Cash flows?
- Let’s say the existing model business is just fine, it’s just an opportunity that the company saw and decided to take. Fair enough? I just want to know two things about the recent acquisitions - why and why now?
My conclusion is that due to the past acquisitions, cash flow analysis should be done on a standalone basis. That way one can eliminate the possibility of increased cash flow which is not related to the business of the company.
For reference, I am reading this book called Financial Shenanigans by Howard Schlit (CPA and PhD). One of the best books I’ve ever read and I am not even halfway through.
Talking more on cash flow, Cash Flow from Operations is a function of two things - EBITDA and Working Capital Changes (Cash Conversion Cycle)
Higher the CCC lower would be the CFO.
Per screener, the cash conversion cycle (CCC) has increased from 104 to 373 days (I don’t normally rely on the screener figure though) and yet the Cash Flow from Operations (CFO) increased from 82 to 250 crores! 3 times!!
One might argue that despite a huge increase in CCC, which should ideally reduce cash flow, the cash flow grew because EBITDA grew.
I"ll argue further, does the % increase in EBITDA really justify the % increase in Cash Flow?
The math ain’t adding up for me. Asking questions is my job, the rest is upto you.
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Do you trust the management or do you think they are cooking the books?
The screener calculation includes 360cr of Dolphin and Kandla receivables. That’s why it is so high over there.
Recievables excluding dolphin and kandla have actually come down yoy (223cr vs 250cr odd in FY24)
and working capital days were 139 days vs 200 in FY24 (receivables excluding dolphin
+kandla + inventor - payables)
Deep average working capital days over last 6 years was 185-200 days which came down to 139 days, thus explaining the increase in operating cash flows. So contrary to your point of “MATH AIN’T ADDING UP”, everything is adding up
and if you spent a little time in doing actual research and not trusting cursory numbers on websites, you would understand that.
" 1. If this is a strategy, then why is it in place? Is the existing business model not capable enough to grow Cash flows?
2. Let’s say the existing model business is just fine, it’s just an opportunity that the company saw and decided to take. Fair enough? I just want to know two things about the recent acquisitions - why and why now?"
On 1st question: So according to Mr. Kautuk’s rules company only has to earn money from existing business model and can’t take any other opportunities that might come it’s way
on 2nd: Why and why now. Because it came up NOWWWWW. According to you, business world is smooth and well planned and everything should happen at given time.
Business is a dynamic place and whatever new opportunities arrive, I’m glad that one of my portfolio companies takes it.
Still, ZERO substantive points have been made. Waiting for one to be made.
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2 points that I wanted to add.
Firstly, I don’t think the business is particularly cheap for such a capital intensive business with low cashflows. In fact a PE of ~18 seems quite well priced by historical standards (even considering the older entity i.e. Deep Energy Resources Ltd). That said, it doesn’t seem exorbitantly priced compared to other companies in this market.
Secondly Everything points me against management being a fraud. Of course I might be wrong but listing my observations below.
-
Vision: The management seems quite visionary. The want to go end to end in the O&G servicing sector. Hence the name “Deep” industries.
-
Execution: For a sector where execution and debt discipline is paramount, the management has done exceedingly well since 2013 (Including Deep energy resources as part of analysis)
-
Shareholder interest: Management has taken some excellent decisions favoring existing shareholders. Points listed below
- The management is paying out dividends, which you can argue both ways but at least it strongly suggests that these are real cashflows and not fake accounting entries
- The management did QIP in 2016 (The year might be off) which was done at a very high valuation and they planned a QIP now which was also at an all time high valuation. They cancelled it once valuations came down. Diluting equity at high valuations is great for existing shareholders
- The remuneration (rent + salary) as a % of PAT is quite low given the growth they have given
- Capital Allocation: Management has also been excellent at capital allocation. Captured some points below
- Value accretive acquisitions of Dolphin and Kandla
- CAPEX deployed only for confirmed orders
The only red flag I saw was that they were quite tight lipped about the ONGC issue that occurred a couple of years ago. Management could have been more proactive about sharing any details.
But otherwise they look quite good to me. Looking forward to opinion from others.
Disclosure: Minor investment and looking to increase share in portfolio.
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“Deep Industries Limited, a pioneer & ‘one-stop solutions provider’ for every need of Post
Exploration Value chain services, reported 71.4% rise in net profit to ₹ 71.2 Cr for the second quarter ended September 30, 2025. Operational revenue of the Company for the quarter grew 69.2% to ₹ 221 Cr; and EBITDA rose 74.7% YoY to ₹ 113 Cr. For the first half, the Company’s net profit rose 65.6% to ₹ 133 Cr; EBITDA jumped 64.9% to ₹ 208 Cr and revenue stood at ₹ 421 Cr, up 65.5% YoY.”
Unbelievably good results from Deep!
Cash flows are very good at 70% ocf/Ebitda
No increase in debt
Operating ROCE touches 20%!
Let us see what the naysayers have got to say to such a flawless performance.
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The only concern I see with Deep industries is the opportunity size. I Don’t think the company has a significant headroom to expand.
The 2 new key expansion areas i.e., offshore services and PEC will likely not add significant headroom for growth.
Anyone got any thoughts on this?
For a 3000 Cr company with 3000Cr orderbook & 45% Ebitda margings (And still improving)
with 10+ yr annuity contracts, two source of revenues with 85-90% ebitda (PEC contract with ONGC and the Barge in mexico) - enough headroom for next few years.
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i dont think so. they are slowly growing their offshore business via Dolphin buying more rugs and maybe even barges like Prabha in future. Thats why they are raising 300 cr via QIP. Also I think PEC contracts or their variants are the future. They are solid in their onshore business but I guess its the offshore one that will drive the future, Though coz of their past governance misdeeds, markets are sceptical and aint rerating it. Absolutely no institutional interest.
Actually, thats the challenge to sit through such good results with such poor price action.
Roger Federer in his speech at Dartmouth, when he was awarded an honorary PhD said, “Effortless is a myth”
In this case, “Flawless is a myth”
I have been quite vocal on this thread for existing members to analyze cash flows on STANDALONE basis and not Consolidated basis to avoid any accounting adjustments.
CFFO [Cash flow from Operating Activities} to EBITDA (Standalone) (all particulars in ₹ lakhs)
CFFO for the 6 months ended = 7933.64
Add: One time gain on sale of PPE = 325.74
Adjusted CFFO = 8259.38
EBITDA (6 months ended) = 16013.1
CFFO to EBITDA = 51.58%
Not so spectacular now is it.
Moving on, PFA an extract from the filings for results of Q2 FY 26:
I would like to draw emphasis on the last 3 lines:
The Parent Company has initiated the process of obtaining such confirmations, which constitutes a departure from the requirements of the auditing standards.
Standard on Auditing (SA) - 505 External Confirmation requires the auditor to obtain confirmation of receivable balances. In this case, it is the management doing this job. Now, where is the problem? If the auditor confirms these balances and determine that they are not recoverable, the management has to either create ECL provisions for those and if the management refuses to do so, the auditor has an obligation to qualify the report.
However in this case, since the management is confirming these receivables and they obviously are of the opinion that they will recover these balances, no ECL provision has been made. So my concern is that the management is delaying making provision of bad debts for these receivables and have very cleverly done so.
They are reaping all the benefits from these acquisitions but are delaying the costs that come with them, a fundamental violation of accounting’s most basic MATCHING PRINCIPLE.
My opinion is not modified in respect of this matter.
Also, above discussions implied that writing off these receivables would increase ROCEs. I don’t know. Writing off 300 crores of receivables indeed reduces 300 crore worth of Capital employed but it also reduces profit by 300 crores. Maths was never my forte.
I also need time to comment on the Working Capital part.
This is what the “naysayers” think
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“A little knowledge is a dangerous thing,” said by Alexander Pope - and this is exactly why relying on single-period CFO/EBITDA can lead to wrong conclusions.
A 6-month cash-flow snapshot is far too noisy because Deep Industries’ business model has inherent working-capital swings, mobilization advances, and timing-related variations that distort CFO in short periods.
If you want to judge whether EBITDA is truly converting into cash, the correct approach is to look at cumulative CFO vs cumulative EBITDA over multiple years.
That smooths out one-offs, seasonality, advance receipts, receivable timing, and WC movements, giving a far more accurate picture of long-term cash conversion.
So instead of drawing conclusions from a half-year ratio, it’s more appropriate to use 3–5 year cumulative CFO/EBITDA to evaluate real cash-flow quality.
On the Acquired debtors part:
This part is even more misunderstood by you
The acquired receivables were not bought at face value.
Deep acquired the company for a negligible consideration, and on consolidation, the acquired receivables appear in the consolidated balance sheet, which mechanically lifts the consolidated net worth from 1,596 crore to 1,819 crore.
But let’s be clear:
- The real economic net worth is 1,596 crore (Deep standalone).
- The incremental 222 crore in consolidated NW is simply a balance-sheet gross-up from consolidation accounting.
- Even if the entire 222 crore were written off tomorrow, it would only reverse the consolidation add-on, a notional loss, not a destruction of Deep’s real net worth.
- There is no cash outflow.
- There is no erosion of standalone economic value.
So the fear that a write-off will “reduce their net worth and profits by 222 crore” is mathematically incorrect and ignores how purchase accounting works.
You cannot lose what you never paid for.
“This is what the naysayers think” - Ironically, the argument proves the opposite.
A proper reading of the numbers shows:
- No real net-worth risk
- No cash-flow risk
- No economic loss
- No change in Deep’s underlying fundamentals
The only thing at risk here is the narrative created from misunderstandings.
When accounting treatment is confused with economic reality, it leads to conclusions that sound alarming but have no substance. The numbers, when understood correctly, don’t support the naysayer story at all.
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I understand the consolidation accounting part.
I also understand there is no real economic outflow.
I just follow a simple logic.
If you are getting benefits from something, recognize the costs associated with it. Kandla, Prabha etc etc hits the credit side of P&L account, all costs incurred to earn those income should be recognized. Those costs are provision for bad debts
Regarding cash flow, it was just a reply to Mr. Pranav’s OCF to EBITDA of 70% for this Half year only.
The main question here is the divergence of the auditor from SA - 505, the management allegedly (alleged by me) delaying recognising provisions (costs) when economic benefits are still recognized (in accounts as well as otherwise)
I acknowledge that there is really no threat to their networth. There might be an exceptional item, an extraordinary item, etc etc. Not a major concern.
Your main thesis is that the company acquired the acquirees practically free of cost and the write offs dont matter. I disagree. Purchase consideration is really not relevant to me. If the company is earning from the acquisition, regardless the price paid, it should recognize the costs associated w.r.t those income. Provision for bad debt is a real cost irrespective of price paid because debtors is a real asset and whose recovery is a real economic inflow.
Recovery of those earlier receivables would be a real inflow and hence provision should be made because that’s a real threat. Auditor not verifying those balances is even a bigger threat.
As people say “Sab hawa mei hai”. This is the case with receivables. The auditors are Believing whatever the management is saying about those receivables.
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I already answer this too:
Even if the entire 222 crore were written off tomorrow, it would only reverse the consolidation add-on, a notional loss
Even if they book provision, that what will change?
You are just catching catching small - small things from starting, the impact of which is nothing or insignificant.
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I guess there’s some misunderstanding. I have no doubt that it would be the consolidation add on that would get written off
But trade receivables is a debit balance. To write eit off, we have to credit it. So trade receivables credit. In order to credit debtors, you need to debit something right?
I also get that after write off the consolidation add on would get reduced and the tangible net worth would remain. (For example 100+2-2)
I am just condemning both the auditors and the management in dealing with these trade receivables.
The auditors should never have let the management confirm those, since the amount is material, and the management is too optimistic. Not a single provision for receivables of an insolvent company!!
Even if they create provision, I would consider it as an exceptional item and will not consider it for the valuation purpose.
Yeah, even the management will classify it as “exceptional”.
I completely disagree though. I will not look at it as an “exceptional item” solely because it isn’t. When DIL brought Kandla, it brought all its pros and all its cons. So all benefits are ordinary but all costs are exceptional? No sir
Obviously, recovery of receivables does NOT hit the Profit and Loss account, unless previously classified as bad debt. Still, I am not able to fathom all the stuff happening.
Economic Benefits - Great management, free of cost acquisition, excellent decision
Costs - Exceptional write offs
And exceptional items by definition are exceptional. This is the second time in 2 years 
. Inventory write offs in Q4 FY 25 and now this
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Sorry I can’t help you any more
Research more & read some accounting books, I hope you will get your answers soon
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One participant raised a question about the increase in non-current loans to a related party (Prabha Energy). Management’s response—that this is a consolidated loan given to Prabha Energy at 12% interest, originally provided before the de-merger and still ongoing—cannot be relied upon, as it contradicts the balance sheet details.
As per balance sheets:
- In FY24, the company provided a current loan of ₹74 crore to Prabha Energy.
- In FY25, this was converted to a non-current loan and increased to ₹90 crore.
- In H1 FY26, the non-current loan assets increased further by ₹24 crore in the consolidated balance sheet.
On Prabha Energy’s side, its balance sheet shows a corresponding increase in non-current liabilities by ₹21 crore. Since, Prabha Energy is a loss-making company that too paid only ₹15 lakh in interest during FY25. Hence need to reverify mgt’s claim of 12% interest paid and no addl loan provided to Prabha.
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Yes. That is the one actual corporate governance blemish on the company, instead of all the nonsense that has been spouted above.
Taken from Prabha annual report.
I think they are repaying Deep by borrowing from other sources. Prabha had borrowed 54cr (42 from deep and 12 from other sources) (from cash flow statement of Prabha) in FY25.
Since interest payments are coming on time at 12%, so it’s not as big of a red flag. But definitely it’s a blemish on Corporate governance, since they’re planning QIP while having 90cr stuck in group company (as pointed by the participant in concall). I believe currently Prabha doesn’t have the capacity to repay entire borrowings of Deep, since it’s in exploration business.
On the plus side, Prabha recently commenced CBM production at one of their gas fields. So may be that’ll help accelerate repayments to Deep. (MAYBE..)
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Instead of increased loan to Prabha now at 114cr, false ifo to that participant has made me to rethink on the inv i have made.. I asked the cs team, if get a satisfactory answer, will keep invested..
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