DEEPINDS - Deep Industries Limited Share Price

Management's outlook is positive, highlighting the transformative phase in the Indian oil and gas sector facilitated by recent regulatory reforms. They noted that the Oilfields Amendment Bill, which includes provisions for shale gas and unconventional hydrocarbons, is expected to unlock significant opportunities for exploration and production. Deep Industries aims to leverage these opportunities through its expertise in drilling and workover services.

Key points presented by management include:

1. Growth Projections: Management anticipates a conservative growth of 25% to 30% in revenue for FY '26, with profits expected to align similarly in the range of 20% to 30%.

2. Operational Efficiency: The company is focused on enhancing operational efficiency and adopting cutting-edge technologies to seize new growth opportunities, specifically in production enhancement contracts and charter hiring.

3. Order Book: Deep Industries' order book currently stands at INR 2,960 crores, encompassing projects executable over the next 2.5 to 3 years, with INR 1,400 crores being longer-term.

4. Acquisitions: The acquisition of Kandla Energy and Chemicals was discussed, with expectations of margin improvements of 2% to 3%, driven primarily through backward integration and improvement in operational margins. The total exceptional loss reported for this quarter was INR 251 crores due to a cleanup post-acquisition.

5. Innovative Contracts: Management mentioned multiple bids in the pipeline, with opportunities arising from the 10th round of the Open Acreage Licensing Policy and Production Enhancement Contracts expected to yield revenue in the second half of FY '26.

6. New Revenue Streams: The acquisition of a barge through Dolphin Offshore is projected to add approximately $30,000 daily in revenue, expected to contribute significantly starting Q1 FY '26, alongside anticipated growth from production enhancement efforts.

In summary, management believes that with strategic positioning and effective utilization of regulatory changes, Deep Industries is poised for substantial growth in the coming years.

Question 1: "Rohan Shah, why did the company's margins decline from 43% to 34% quarter-on-quarter?"

Answer: "The decline in margins is primarily due to the consolidation of the newly acquired companies, which introduced certain exceptional expenses amounting to INR10-11 crores. While these expenses affected the quarterly figures, year-on-year margins remained consistent at 40% to 43%, aligning with our long-term outlook."

Question 2: "Can you explain the composition of the CWIP at Dolphin Offshore?"

Answer: "The CWIP of INR222 crores includes both the refurbishment costs, estimated at INR110-120 crores, and the book value of the barge, contributing to this figure. The asset is expected to have a life of approximately 15 years."

Question 3: "What does the $2.2 million investment in HF Hunter involve?"

Answer: "This investment is for a joint venture with HF Offshore, where we acquire an Anchor Handling Tug, enhancing our offshore service capabilities. Our stake in this venture will be 37%."

Question 4: "What were the components of the exceptional loss of INR251 crores?"

Answer: "This loss mainly consisted of non-cash items, including the write-off of inventory and receivables deemed unrecoverable. It was essential for consolidation and does not impact cash flow."

Question 5: "What is the status of the INR108 crores ONGC arbitration award?"

Answer: "We have received 75% of the award. Although ONGC has appealed to a higher court following our favorable ruling, we are optimistic about the outcome once the appeal is resolved."

Question 6: "What improvements in operating margins can we expect from the Kandla acquisition?"

Answer: "We anticipate at least a 2-3% improvement in operating margins thanks to backward integration, as Kandla's chemicals and fluids will enhance our service effectiveness, particularly under production enhancement contracts."

Question 7: "Could you provide more context on the auditors' opinion regarding the Kandla and Dolphin acquisitions?"

Answer: "The audit concerns relate to receivables evaluation. Since Kandla's acquisition took place at the financial year-end, we're still assessing receivables for their recoverability, and we've deferred any actions until that evaluation is complete."

Question 8: "What growth in revenue do you anticipate for FY '26?"

Answer: "We are conservatively expecting a minimum year-on-year growth of 25-30%. Our profitability should align with these projections, maintaining a growth rate of 20-30% based on our current orders and market dynamics."

Question 9: "What will be the capex for this fiscal year?"

Answer: "We are planning for a capex of INR500 crores, primarily for equipment acquisition, including rigs and processing equipment, as well as for potential new acquisitions."

Question 10: "What is the order book's executable duration?"

Answer: "The INR2,960 crores in our order book has INR1,400 crores executable over 10 years. The balance is expected to be executable within 2.5 to 3 years."