South West Pinnacle Exploration
BSE CODE - 543986, NSE - SOUTHWEST
CMP - 115
Company is present across various domains of drilling & exploration like Coal and Mineral drilling services, 2D/3D Seismic exploration, Aquifer Mapping etc. This segment is expected to grow at 15% with EBITDA margins in the range of 20-22%.
Some details about all the segments company is present into.
Company entered into a JV with renowned Australian exploration & mining company, Alara resources in 2018. Company was awarded $125 Mn. Copper mining Contract for 11 years in February 2022.
The company looking for their next phase of growth had bid for 3 coal block and amongst them won a coal block for commercial coal mining in the state of Jharkhand. The estimated Geo reserves of this block is 84MT. Company plans the start coal production by FY26-27 with a capex of 240 crs. According to the management the coal block alone could generate 700-800 crs. of revenue from Fy 27-29.
Companyβs financials have been decent. They have some debt on the Balance Sheet but have been profitable mostly though profit margins are not stable.
Risks -
The coal block alloted to the company is supposed to be at the place where they live. The management said that will help them as they know the area in and out. But coal is a risky business in India.
There is Govt. approvals required in every stage so this can be a hurdle as well. Many a times there have been huge delays because of approvals.
Disclosure - Holding the company so my views could be biased. I am not a SEBI registered analyst. Please consult your financial advisor before investing.
The company is present in the entire value chain of exploration and drilling services. It undertakes drilling and exploration of coal, minerals and coal-bed methane. The company has expanded into aquifer(water) mapping programmes for state and central government agencies besides 3D and 2D seismic data acquisition and processing for renowned oil and gas companies in India. It also provides consultancy for geological field services, mobile field services and other allied services. The company has 41 operational rigs with capacity to drill between 300 and 2500 meters.
The company has won orders from Reliance Industries for CBM, has entered into a JV in Onam for copper mining and has won a coal block in Jharkhand. This makes the company a full fledged exploration and mining company.
Exploration Services
As detailed above the company provides a host of traditional services which include the coal and mineral drilling services, 2D/3D seismic exploration of minerals and Oil & Gas both onshore and offshore. The company also provides geological and geophysical services.
It is the leading CBM exploration and production provider and has won an order from RIL and Oil India. it has 2CBM drill rigs for now which are capable to drill upto 2000m.
The company is also present in unexplored energy industries like geothermal and shale gas exploration service
The company earns an EBIDTA of 20-22% in these services and a growth of 20%.
Order book position as of March 24 is 221cr. CBM Reliance Project.
In FY 23-24 the company won a production project from Reliance for Rs. 84cr. The company expects that it is possible that the size of the project can increase to 270cr. Onam Project
In the year 23-24 the company has won a copper mining project of Rs. 1,050 cr. The company has a 30% share in the JV. The entire contract is outsourced and it expects to provide a steady PAT of 2-3 crore every year.
The company has created a Saudi Arabia subsidiary under this JV to carry out similar mining services out there.
The company expects further orders for the JV in the coming years due to diversification of revenues implemented by Oman. Jharkhand Coal Mine
Company won the Jharkhand coal mine which has potential reserves of 84 MT. in 2021.
The company expects to start the production of mine in FY 26.
The company would have to incur a capex of 240cr for this project. Out of this Rs. 72cr approx. is payable as upfront fee which shall be adjusted against future payments to Government by way of Royalty and revenue share. Hence the effective capex comes to Rs. 168cr .
The company expects to generate a revenue of Rs. 700-800cr from FY27-29. On the above revenue it expects to generate a EBIDTA of 40-42%. Financials
For FY 24 the company earned a revenue 133 cr with a EBDITA Margin of 18% amounting to 27cr and PAT Margin of 5% amounting to 8.3cr.
In Q1 FY 25 the company earned a revenue of 30cr, EBDITA of 7cr and PAT of 2cr.
It is trading at a TTM PE of 40, EV/EBIDTA of 15 and Mcap/Sales of 2.7
Can you help me in understanding the capex plan?
Current debt is 84 cr. Raising 75 cr through preferential.
Mining requires 168 crore capex. As per 75 crore share issuance intimation, they have allocated only 17 crore for mining capex.
So does that mean rest will come through debt ? Because I do not see they can raise rest of the amount again from preferential or QIP route.
