Jindal Drilling - Beneficiary of a sustained offshore upcycle?

Jindal Drilling Limited Q3 FY25 Concall Summary

Operational Achievements:

  • Major Development: The deployment of the Jindal Supreme rig with ONGC on October 15, 2024, drove significant financial gains.
  • Acquisition Progress: Jindal Pioneer acquisition is nearing completion.
  • Offshore Segment Contribution: Over 90% of EBITDA came from the offshore drilling segment.
  • Net Cash Position: Doubled over the past nine months, reaching INR 101 crore.

Outlook:

  • Earnings Prospects: Expected to rise with the Jindal Pioneer acquisition.
  • EBITDA Continuity: December quarter’s EBITDA run rate is expected to maintain for four to five quarters.
  • Revenue Variability: Possible fluctuations anticipated due to potential off-hire of Jindal Explorer rig.
  • Impact of ONGC Activities: Increased exploration may positively impact, but specifics require materialization of expenditures.

Concerns:

  • Jindal Pioneer Acquisition: While completion is hopeful within the current quarter, uncertainties linger due to external approval requirements.
  • Jindal Explorer Contract: The continuation of its contract through the monsoon is uncertain, with expected clarity by March 2025.
  • Future Day Rates: Dependent on global market trends, posing uncertainty.

Additional Insights:

  • Order Book Status: Valued at INR 1,636 crore, with comprehensive details in the investor presentation.
  • Buyback Program: Not under consideration at this time.
  • Focus: No plans for diversification beyond rig operations; emphasis remains on consolidating and boosting profitability.
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Concall Notes : #Jindal Drilling Q3FY25

  1. This is the first time in company history that all the rigs are operated simultaneously.
  2. After completion of the 3 years contract rigs go for refurbishment which can take up to 4-6 months and significant money. Rigs are operated 24 hrs a day 365 days a year. Before getting into new contract recertification is necessary. Reasonable amount of money is spent in refurbishment. Jindal Supreme is a very old rig and company spent north of 130 crs to refurbish it. (Q2FY5 concall)
  3. If someone wants to buy a new rig cost is nearly 2400 crs and waiting time is 3 years. So supply of new rigs in market is very limited. New rigs are not being manufactured because even at current rates payback period is > 10 years.
  4. Jindal Explorer Tender is submitted and waiting for outcome.
  5. Jindal Supreme operated only for 75 days in Q3. It will operate for 90 days in Q4 so further upside in profitability is expected. My Estimate is 5 crs.
  6. Jindal Pioneer acquisition should conclude this quarter. If that happens then additional profit of 9-10 cr per Q. Although depreciation will also increase.
  7. For this acquisition payout is 75 Million Dollars. 30 Dollars is already given as loan to JV partner. So net cash outflow is 45 million dollars which will be payable in tranches over the years with internal accruals and no term debt.
  8. From 2021 company has brought 2 rented rig under its own balance sheet. Going forward also this will be the focus. Because O&G upcycle is here and opportunity for acquisition are virtually close to zero.
  9. For rented rigs rents are also renegotiated when days rates are negotiated.
  10. Jindal Pioneer will be bought to India unless it gets a day rate of 1,80,000 dollars. Operating costs are very high in international waters.
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Praetorian Capital note on drilling business

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