Production could multifold; situation to change significantly in FY2015
Selan Exploration has commenced its drilling operations in nine wells in its three operational fields, Bakrol, Indrora and Lohar. The new wells in the Lohar field are being put on regular production, which could help in an improvement of the volume in the coming quarters. We expect the newly drilled wells in Bakrol also to get commercialised soon, while Indorora could take a little longer than expected. We believe after a gap of almost four years, Selan Exploration is again aiming at a multifold growth in its production in the next two to three years. In the past too, Selan Exploration was able to boost its production volumes by four times in a period of three years (FY2006-09).
View — retain our bullish stance; revised price target to Rs700
Given the initial signs of success in this phase of development of its oil fields, we have tweaked our assumptions (though still conservative) and revising upward the target enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple to 6.5x (a 10% discount to its average multiples in the last phase of development FY2006-09 when the output had almost gone up by four times in the three years). Consequently, we revise our price target to Rs700 and retain our Buy rating on the stock.