DETAILED Q2FY25 CONCALL NOTES:
• PEO CONTRACT: Through this contract we will earn service revenue linked to production increase. Although the contract spans 15 years and since it is front loaded, majority of the revenue will be booked in the first 10 years.

Our estimate says that every year, we should book more than Rs. 100 crore a year.

This contract is the first of its kind from ONGC, with more rounds likely to follow. Our public sector units and private clients are also introducing PECs and with our 30+ years in the industry, we are well positioned to secure similar projects in the future.

We anticipate margins above 40% for this production enhancement contract as well. Such high value contracts with excellent margins are expected to significantly improve both our top and bottom lines. Execution of this contract will commence in 7-8 months targeting the next financial year.

In the production enhancement contract, we will have to do a certain amount of CAPEX, but that has been staggered over a period of 10-12 years. The exact CAPEX plan will be formalized once we take over that field and start implementing the strategy which we have planned.

The asset which we have got is not under APM price. We can sell the gas at market price.

Revenue model: Revenue is split in two different modes. One is fixed, which is for their existing production line and whatever incremental production we achieve, we will get our services charges which are similar, or you can say equivalent to 64% of revenue of that particular incremental gas.

The contract was ordered considering $7 of natural gas price, do you think there is any chance of in the near term maybe the gas prices falling below that? Rohan Shah: Not at all, because currently it is trading somewhere around $12.5-$13 MMBtu and price falling below 7, we don’t foresee even in rarest of rare thing kind of.

So, in this particular kind of business, the selection of field is very crucial because if you do not have any data or knowledge about geology of that particular field, then getting such contract may not be that fruitful even if you get contract for 15 years because you will have to understand and evaluate the geology of those particular fields well in advance before even applying for those fields, because at the end of day your revenue is more linked with incremental production. And so, we have been able to select the field which we believe is very resourceful and from which we can definitely increase the production and get our best part of revenue.

• We anticipate additional valuable contracts to be added in our order book in the coming 3-6 months, alongside strong bidding pipeline conversion within our regular business verticals.

Bidding pipeline of almost 800 crores for our regular traditional business

• PRABHA BARGE: The update on the Barge asset Prabha is that the refurbishment is now in the final stage of completion, and we expect it to contribute the revenue from quarter IV

$50,000 is what we expect minimum revenue per day. Currently, the rates are even higher than 50,000.

Contract hasn’t been signed. So, currently, the discussions are already going on with potential clients and we are evaluating both possible options whether to put on a charter hire of long term more than 5 years plus or to have a short-term charter hire.

• H2 has always been higher than H1. And so, we believe this year will also continue the same trend and our H2 would definitely be higher in terms of revenue than H1.

• We believe we can have a growth of almost 35% year-on-year like last financial year, we closed somewhere around Rs. 426 crores and this year we are expecting almost 35% growth to close FY25. And similar amount of growth we are expecting for FY26. So, our estimate says that we can close FY26 topline somewhere around Rs. 800 crores.

• DOLPHIN CONTRACT: In H2, we are estimating something around $2-$3 million to be added into revenue from this particular contract and with regards to receivables collection, it should start immediately after Diwali for this particular contract.

• DOLPHIN RECIEVABLES: Received 3 arbitration awards in our favor. 33 – 35 crores amount awarded. Amount yet to be received. Ideally, it should have come by now, but since these clients are PSU’s, we will have to give some more time to them.

Other debtors, we are pursuing for recovery of the receivables, which we believe should definitely come to us.

• For customers like Vedanta and ONGC, how is the contract structure generally? Is it a maintenance contract or is it just a one-time installation and then it runs for a particular lifetime. How is generally that particular business, is it repetitive?

Rohan Shah: So, these are service contracts and largely these contracts have been awarded in the range of 3- 5 years. And on completion of those 3-5 years, they will come up for rebidding. And our revenue generally depends on the quantity of gas we process. They are more of annuity contracts.

• Regarding offshore drilling, we do not intend to enter into that segment as it is a very capital intensive and risky segment

• In the current financial year, we are adding three new rigs, which will definitely start contributing in revenue probably in Q4 or in Q1 of next financial year.

We are adding 3 rigs, out of these three rigs, one is 1000 horsepower drilling rig and other two are workover rigs of which one is 100 ton and other is 150 ton. So, all these three rigs are having different rates, and we have already confirmed order for these rigs. And based on those orders only, we are importing them

1000 horsepower drilling rig should bill somewhere around Rs. 3 crores a month and workover rig billing should range from Rs 50 lakhs to 75 lakhs a month.

• So, as a policy, we always go for CAPEX only after getting a confirm order and it varies from contract to contract, order to order.

• Loan of Rs. 58 crores has been given to a Company called Prabha Energy, which is our group Company, and it is a short-term loan recoverable within a year’s time.

• Have bidded for another PEC. It is still under evaluation.

• OVERSEAS OPERATIONS: In Middle East, we provide various gas processing services from compression, dehydration, and processing to countries like Egypt and Oman, and this particular Company is contributing around Rs. 40 to 50 crores a year. And we believe it should continue contributing this similar amount with growth of around 10%-15%.

• RAAS: With regards to booster compression business, under RAAS, we are not anticipating much growth because the GA’s which have been awarded for City Gas distributions are getting extensions and so the demand of those booster compressors is not picking up as per our expectation. So, that particular Company is contributing not more than Rs. 15 to20 crores a year.

• LINKS TO CRUDE PRICE: Our business is not at all linked with crude prices or their fluctuation because primarily we are into services business. And our service contracts are fixed price contracts for the tenure of contract. So, once we have entered into a contract with X rate, those rates will continue for the tenure of contract. They are not at all being affected by crude price.

Second, in our overall service mix, our major focus is on natural gas rather than on oil because in our drilling rigs or workover rigs, if my client is giving me to drill oil wells, then only we are exposed to crude oil. Otherwise, we are drilling gas wells also and oil wells also. Other than that, our entire service portfolio is pertaining to natural gas, which is not directly linked with crude oil prices.

And since our entire business is largely domestic within India, so we haven’t seen any direct relation with crude oil prices in last 30 years. In fact, we have seen sometimes where crude was going down and our services rates were increasing. So, I don’t think we have any direct impact of crude price in Deep Industries’ business.

• Developing a field is required 1, 1.5, 2 years’ time and so I don’t think with reduction in crude price, exploration activities will start dipping and largely with clients which are PSUs like ONGC, they largely run on national interest rather than making it profitable, and so to meet the country’s energy requirement, we haven’t seen such clients reducing their exploration plans in any crude oil price.

Ajanta continues growing quite well and keeps generating (and distributing) very healthy cashflows. They are looking to get into newer therapies and pushing their branded generics business. Concall notes below:

FY25Q2 concall

• Sales grew at 15%, Gross margin 78%, EBITDA margins ~ 26%, PAT margins ~ 18%

• Announced dividend of 28/share; H1FY25 payout is 701 cr. (90% of CFO)

• US :

  • (-2)% YOY decline (no new launches). Launches lined up for Q4 (4 launches in H2)

  • ANDA approvals reduced to 55 (vs 58 in Q1)

  • Target to file 8 products in FY25 (reduced from 8-12 earlier)

• Domestic :

  • 9% YOY growth, launched 10 new products (3 first launches in India)

  • Looking to get into newer specialties

  • Cardiology growth rate continues reviving (Q2 according to IQVIA: 16% vs 12% for IPM)

  • 12 brands with 25 cr.+ revenues (vs 11 in Q1)

  • Trade generics : 46 cr. (vs 45 cr. in Q2FY24). India has 15,000 Janaushadhi stores (vs 7-8 lakh chemists)

  • MR productivity (PCPM) has increased to 7.5 lakhs/month

• Emerging market (branded generics)

  • Africa branded grew by 35% (launched 1 new product in Africa). Growth will be lower in H2FY25 (overall expect mid to high teens growth in FY25)

  • Asia branded grew by 28% (launched 6 new products in Asia)

  • Launched 13 products in emerging markets

• Africa institution

  • Increase of 16% YOY

• MRs increased to 5100+ (vs 4800+ in Q1). Indian MRs increased to 3200+ (vs 3000+ in Q1)

• Other expenses increased by 36% (25.65 cr. was forex losses in Q2, H1: net forex loss was 5 cr.). H2 other expenses will be in-line with H1. Excluding forex losses, H1FY25 other expenses were 590 cr. (vs 534 cr. in H1FY24) and this is in-line with their growth

• Capex: 130 cr. in H1 and expected to be 200 cr. in FY25

• Working capital improved with debtors reducing to 81 days (vs 109 days in FY24) and inventory reducing to 67 days (vs 73 days in FY24). Payables reduced to 74 days (vs 85 days in FY24)

• R&D stood at 5% of sales

Disclosure: Invested (sold shares in last-30 days)

Can you mention Source please

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