I can’t.
But if the management failed to recover receivables in 3 years, how can you expect decent recovery in only 6 months post March 2025?
2 Likes
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
1 Like
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.
4 Likes
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.
5 Likes
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)
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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.
4 Likes
“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.
9 Likes
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.