Deep Industries….debt free and cash rich…integration of Dolphin offshore will be big trigger…strong focus by Government on Oil & gas sector…good note

Deep Industries….debt free and cash rich…integration of Dolphin offshore will be big trigger…strong focus by Government on Oil & gas sector…good note pic.twitter.com/0Dq0L0Qa7x

— Darshan Mehta (@darshanvmehta1) September 19, 2022

InCred Equities

Oil & Gas Integrated India September 17. 2022

Deep Industries Ltd

Vocational business; robust market share

The shift from captive business to outsourcing is a big opportunity

Oil and gas producers traditionally prefer to work on a captive business but the increase in opex, cast-off of existing equipment, handling and safety requirements of workers, and the need for operational efficiency have led to outsourcing of oil and gas services. DIL has tie-ups with international companies as well as well-trained teams for technical support as they are vital to stay ahead in terms of quality, capability, and technicalities. Currently, gas compression is done 70% captively, and 30% is outsourced of which DIL has a 90% market share. Uptime efficiency of DIL is believed to be 99% whereas clients achieve 90% efficiency doing it captively.

Zero net debt company

DIL has focused significantly on staying at zero net debt level – from Rs2.23bn in FY17 to nil in FY22. The company preferred to stay below the 0.5 debt-to-equity ratio as it is in a capital-intensive service business. It has decided to stay low on debt because several players have gone off the mark in this industry by having high leverage. Current liquidity is Rs0.70-0.80bn and the company has planned to use a portion of it for Dolphin Offshore acquisition and the remaining amount for capex. On the capex side, DIL is currently doing around Rs0.60-0.65bn, and capex will be incurred only on the basis of confirmed orders, client request, or if all the equipment is utilized 100%.

Management interaction – key takeaways

1. a) The rise in gas compression demand from 85% to 95% is a key upside for the company to get more orders for its gas services segment. b) The acquisition of Dolphin Offshore widens its services on the offshore side. c) Bids to Kuwait Oil Company or KOC have been submitted and an update is expected in a month’s d) Outsourcing in respect of oil & gas services is increasing, which is an additional benefit. e) Raas subsidiary’s performance – sold around nine units of CNG boosters and compressors in 1QFY23, with the business slowly picking up. f) The company is a one-stop solution provider for oil & gas producers. So far, Deep Industries has earned positive testimonials and awards from clients, and it has also learnt to execute as per clients’ capability and configuration without involving any penalty.

Management meet highlights

• DIL’s current order book is more than Rs7.6bn. 1-2 tenders have LI status for which the company is likely to get orders soon, and its order book could top Rs10bn in the next two-to-three years.
• Segment-wise break-up of its order book is 36-37% in gas compression, 33% in workover & drilling rig and the remaining in dehydration and integrated project management services or IPMS.
• DIL leads the market in the gas compression segment with its current share at 90%. Overall market share in oil and gas-related services is around 75-80%. Currently, 70% of gas compression demand is serviced in-house while 30% is
• DIL has a strong record in winning tenders as there is less competition and it also has tie-ups with international companies for technical support — vital to stay ahead in terms of quality, capability, and configuration. Uptime efficiency for DIL is likely at 99% whereas clients achieve 90% efficiency doing it captively.
• As regards Dolphin Offshore, the Committee of Creditors or CoC has approved the debt resolution plan and it is with the National Company Law Tribunal or NCLT for approval.
• DIL has preferred to stay below the 0.5 debt-to-equity ratio level because it is in a capital-intensive service business. The company has decided to stay low on debt and, as per its management, several players have gone off the mark in this industry with high leverage.
• Current liquidity is Rs0.70-0.80bn and the company plans to use some of it on Dolphin Offshore acquisition and the balance amount on capex.
• DIL is currently incurring a capex of Rs0.60-0.65bn and infusion of further capex will be only on a confirmed order basis or if all the equipment is 100%
• Segment-wise EBITDA for gas compression and dehydration is around 55%, for work over and drilling rig it is 40-45%, and for integrated project management service it is 25-28%.
• The payback period for gas compressor capex ranges between three and four years. In case of drilling rigs, the payback period ranges between four and five