Q1 FY27 Results.. Strong growth in consolidated numbers but Flat Standalone numbers,
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Q1FY27:
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CONCALL NOTES:
• The government strategy has undergone a fundamental transformation, pivoting from a revenue-sharing mindset to an aggressive exploration first agenda. This policy overhaul aims to reverse a decade-long decline in domestic crude oil production
• Out of approximate 30% of the business being outsourced, currently, almost 85% of that outsourced gas compression has been executed by Deep Industries Limited throughout the country. We own more than 80 gas compressor units, which is highest fleet in India
• HIGHER CAPCITY RIGS: Considering huge demand on onshore drilling rigs under integrated project management, the company is exploring opportunities of entering into higher capacity drilling rigs, which can add further to the growth of business. The demand of 2,000 horsepower and 3,000 horsepower are also good and coming up in a great way in near future. So, we are in process of evaluating and bidding this higher capacity drilling rigs in probably the next few months.
• PEC CONTRACT:
o Due to an unfortunate incident at one of our wells at Mori 5, the incremental production was delayed by 5 to 6 months. However, we expect to deploy our rigs soon and restart with all the facilities. We also plan to drill new wells to support the incremental production. We expect to start contributing through incremental production by October 2026. With regards to new wells, again, we have planned to drill a few wells in this current financial year. And those new wells would start contributing probably in Q4 or Q1 next financial year.
o And for FY28, we are quite bullish on getting almost more than INR150 crores of revenue. And I think these numbers can go up as well depending on the performance we do in current financial year.
o Volumes for 150cr revenue would be 2.5 lakh to 3 lakh cubic meters per day. Baseline is around 1.44 lakh.
o New contracts: So, production enhancement contract, we would definitely add a few more along with the existing ones. So, ONGC has come up with similar requirement recently. So, we are evaluating that, and we would definitely would like to bid those contracts as well. The new tender has been floated probably a month ago only. So yes, we are actively evaluating that, and we wish to bid for this depending on the results which we get on our evaluation of that particular field.
o This block is under free-price mechanism. So, it would govern with spot price and the market-driven prices. So, we don’t foresee any possibility of falling gas price below 8$. Current rate is ranging from USD 8 to even USD 14, USD 15 as well in spot market.
o Policy tailwind: Government is actively looking to enhance oil and gas production through various mediums, and PEC being one of them, it assumingly seems to be one of the best opportunities. There were a few PECs that happened before a year or so. And now, we have a few more PECs that have already arrived. So going forward, we foresee a good amount of such drives coming in from the government.
o So, Mori was beyond our surprise, and we had encountered a huge amount of gas with high pressure. But with the recent incident, as of now, Mori-5, we are not operating, but we may explore other wells around Mori-5.
o Regarding other 2 production enhancement contracts, which have come out. So, in our present contract, we get around INR1 crore per month to maintain the baseline in the PEC.
But for Gamij, it’s around INR8 crores or INR9 crores per month. And for Geleki, it’s around INR28 crores or something like that. So annually, it’s coming out to around INR100 crores per year for Gamij Field and around INR300 crores to INR340 crores per year for Geleki Field. So, the contract value, I mean, generally out of INR1,400 crores, for us INR150 crores or INR180 crores was coming as a minimum fixed fee. But here, for these 2 contracts, the minimum fixed fee itself is around INR 1,500 crores and around 5000cr. Are these calculations correct?
Paras Savla: See, currently, we are evaluating these tenders. So, it wouldn’t be fair for us to comment about what our strategies would be and what kind of revenue visibility would it be because we have not yet been awarded. But once we have these awards, we would be able to give a better guideline on how we are looking at these fields.
• NEW INITIATIVES:
o Geothermal energy: Deep is actively exploring new opportunities within geothermal energy resources. Geothermal energy is heat derived from beneath the Earth surface. In this venture, our extensive industry experience in onshore drilling will provide a strategic advantage, enabling efficient resource extraction and project development because geothermal projects is heavily on the same subsurface extraction techniques used in oil and gas well drilling. Many of our core competencies transfer directly. The mechanics of operating heavy onshore drilling rigs, managing drill strings, selecting drill bits and handling circulation systems are nearly identical, though geothermal environments require handling higher temperatures and abrasive volcanic rock.
o Hydrogen energy: Beyond geothermal, we are also evaluating various types of hydrogen energy production. Our established expertise in gas processing will play a crucial role in scaling and optimizing these emerging hydrogen initiatives. Our background in gas processing provides a powerful technical foundation for entering into the hydrogen sector. Because hydrogen production, purification and handling rely heavily on unit operations already standard in oil and gas industry, many of our core competencies translate directly.
o There would be definitely a possibility of collaborating or doing a joint venture as we go ahead to develop these fields to the maximum possible level.
o Green Hydrogen: We have already bidded one of the tenders wherein we have undertaken the job to do a balance of plant that is the EPC jobs, and the electrolyzer was something that was provided by another joint venture partner. So, we don’t have the outcome of that tender yet, but we are still closely monitoring any such opportunities that keep coming in this sector.
• OFFSHORE SEGMENT: We are very bullish on the fact that the entire offshore segment would have an excellent opportunity for growth. And all the services related to this sector would in one way or another would definitely be impacting. So, I expect a good amount of significant growth to happening in this sector in next 2 to 3 years.
So, for now, we don’t have any bidding pipeline for offshore, but there are a few tenders which are upcoming, and we are eyeing on those tenders. So, the moment we bid it, then we will be able to tell what kind of a pipeline could that be.
We wish to add a few more tugs and barge and probably 1 or 2 support vessels one by one over a period of next 3 to 5 years.
• KANDLA: So, we are expecting probably later in this current financial year to start getting contribution from Kandla and improvement of our operating margin.
One of the critical chemicals, I would say, which we use in our drilling and integrated project management can be manufactured in Kandla’s manufacturing facility. We can improve on operating margin by 1.5% with the help of manufacturing this chemical in-house.
• FY28 PAT target would be 500crs.
• Bidding pipeline is 700-800crs
• Overseas subsidiaries: In this quarter, we have a good amount of contribution from other subsidiaries, including our Dubai subsidiary. So, I think around more than INR50 crores revenue has come from Dubai, 2 Dubai subsidiaries as well as the Indian subsidiary put together.
So, the Dubai subsidiaries are primarily into same gas processing services as well as they are having some opportunities in equipment sales as well, so 2 subsidiaries are focusing on 2 different areas. And we believe this kind of opportunities will continue throughout the year.
• We are seeing that outsourced market is increasing gradually on the rig side.
• FY27 targeting 350cr PAT.
• So, in coal gasification, we are not there.
• Blended EBITDA should improve in FY28 and probably in later year as well because by getting incremental contribution from offshore as well as production enhancement contracts will help us improving on blended EBITDA.
• PRABHA LOAN: So, from the loan given to Prabha Energy, we have received back almost INR86 crores from them. And probably by end of second quarter, we are expecting to clear the entire loan repaid.
• We believe that going forward, ROCE would tend to improve because with contribution coming in from offshore and production enhancement with higher margins, overall return ratios will improve only.
• On a stand-alone basis, we are expecting growth of somewhere around 18% to 20% in this current financial year with a consolidated growth of more than 25%.
THINGS TO TRACK:
• PEC Contract –Will Production enhancement commence in H2? Will the revenue generation be as guided? Can the segment surprise on the upside? Any future execution issues.
• New Offshore/Marine segments: Apart from the barge, what other segments/assets will the company get and how will its revenue and margins pan out?
• Gas Compression and Gas dehydration segments: How much will these be affected by increased competition going forward? Would new segments be able replace their revenue contribution in the long run?
• Core orderbook slowdown?: As focus of the management turns to PEC’s and Offshore segment, will the core segment slowdown a bit? Increased competition in those segments may have led the management to pivot to these new growth segments.
• Kandla energy operations progress: Impact on Ebitda margins and cost savings.
• Loan to Prabha energy: Check in annual report (fy26 and fy27) to confirm management claim of repayment of loan.
• Higher HP Drilling Rigs: Contract values, margins, capex requirements.
• New segments such as CBM, Thermal energy, hydrogen energy, green hydrogen progress.
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Deep continued its stellar operating performance in Q1FY27. And the near to medium term outlook looks extremely strong.
Offshore segment should get a big tailwind from the Samudra Manthan mission passed by the government recently.
New PEC contract sizes (as mentioned by the participant in the concall) are enormous compared to the one won by deep. If they manage to win one such contract, it would put the company in another orbit.
In addition, the company is seeding new verticles like green energy and geothermal energy. Any significant progress here could be extremely beneficial for multiple re-rating.
Also, One of the main corporate governance issues - The Prabha loan is going to repaid fully by HY end (Need to be confirmed in ARFY27). If that gets through, then it would be another big positive.
Market has started to appreciate the value and the operating performance the company has delivered. FY28 PAT target is 500crs. Margins to improve further. ROCE to improve further. Implying a multiple of 20x P/E, market cap comes at 10000cr (Current market cap = 4136cr). So, a lot of room left for re-rating.
DISCLOSURE: INVESTED (Had added to position during correction to 400 levels). CONVICTION = Very high.
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ARFY26 NOTES:
• A key catalyst has been the exceptional response to our specialized value-added services—particularly our charter-hire model for complete gas processing facilities. By delivering comprehensive, turnkey solutions, we create a genuine win-win ecosystem that optimizes costs for our clients while securing sustainable revenue streams for us.
• The government has launched “Special CBM Bid Rounds” in 2025 and 2026. These unconventional sources are expected to start feeding into the national gas grid by early 2027, particularly in the eastern states.
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(62:38% in FY25)
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(206 employees and 1551 workers in FY25)
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(Deterioration of Receivables aging. Big jump in receivables outstanding 1-2 years period (Mainly in Dolphin). Bad debt of 9cr written off in Dolphin old receivables.
Need to monitor any more write-offs in Dolphin and track receivables ageing in FY27 to see if situation deteriorates further or improves.
A RED FLAG.)
(The increase in Dolphin trade receivables ageing could be the reason they changed contracts of the Prabha Barge.)
• Unbilled Revenue – 5.5cr vs NIL in FY25.
• Rate of Interest on loans: 7.6% - 9.15%
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(Big jump in sales of spares and sales of trading goods. Is it the PEC contract revenue?)
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• Managerial remuneration – 1.96cr.
Lease rent paid to related parties – 2.32cr
Total – 4.28cr. PAT is 200cr+. So very reasonable payments to promoter.
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(Prabha loan has not been reduced till end of FY26.) (But payment has come in Q1FY27 from Prabha energy rights issue)
(From monitoring agency report of Prabha rights issue) A BIG GREEN FLAG.
(Deep Methane transaction is there for the first time.
Sales, Interest Receivable and trade receivables increase in Prabha account.
ORANGE FLAG)
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(RAAS turnover increased to 31cr vs 18cr yoy. But still loss making, though reduction in losses. 0.21cr PAT loss vs 1.38cr PAT loss yoy.)
(Deep International DMCC sales 28cr vs 18cr yoy. PBT 2.97cr vs 2.08cr yoy)
(SAAR International FZ LLC big jump in turnover and PAT yoy. 33.3cr sales vs 3.78cr yoy. 16.9cr PAT vs 1.79cr PAT yoy)
DOLPHIN OFFSHORE FY26AR NOTES:
• In 2026, DP2 configurations command the largest share of all marine dynamic positioning installations, serving as essential, high-stability workhorses for complex marine environments.
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• The offshore support vessel market remains in an upcycle driven by higher offshore capital expenditure, improving utilization levels and constrained vessel supply. Demand for Anchor Handling Tug Supply (AHTS), Platform Supply Vessels (PSVs), Diving Support Vessels (DSVs) and Multi-Purpose Support Vessels (MPSVs) continues to improve across major offshore basins.
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• The medium-term outlook for the offshore services sector remains favourable, supported by sustained offshore investment, increasing demand for specialised marine assets and limited fleet additions. The Company expects these industry fundamentals to provide opportunities for long-term growth while maintaining prudent risk management and capital allocation.
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57cr Trade Receivables in 1-2 years period. RED FLAG
Write-off taken in old receivables. So that’s a good thing.
• Unbilled Revenue: 5.25cr vs NIL yoy
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• Unknown Provision: 10.55cr vs NIL yoy
• There are 4 customers having outstanding balance of more than 10 % of the total receivable as on March 31, 2026.
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All in all, a mixed report for DEEP. Loan reduction is big green flag whereas Trade receivables ageing deteriration is red flag and needs monitoring. Increase in related party transactions is an orange flag till we know more about them.
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