Shiv-Vani’s current order book stands at Rs3,500 crore and includes a Rs1,610-crore contract from Oil and Natural Gas Corporation (ONGC) for the supply of eight rigs.
The current order book is 4x the company’s FY2009 revenues and provides strong visibility to its revenues for the next three to four years. Further, the company has contracts in place for all of its rigs with the majority of the orders coming from the public sector units.
The company has added 14 new onshore rigs in FY2009, taking the total portfolio of rigs to 40. We believe that the company could purchase new rigs as it has bid for several new contracts and currently all of its rigs are deployed for the next three years.
The company is also planning to raise money up to Rs600 crore through qualified institutional placement (QIP) or private placement to fund its capital expenditure (capex) requirements for future growth and to reduce its leverage position.
Outlook
We expect Shiv-Vani to report strong Q2FY2010 results mainly on the back of the deployment of five new onshore rigs and the depreciation of the Indian Rupee against US Dollar. Hence, we expect the company’s net sales to increase by 43% year on year (y-o-y) to Rs267.7 crore in Q2FY2010.
In terms of outlook, the company’s management expects strong performance going forward on the back of a strong order book and the fact that contracts are in place for all of its rigs and ancillary equipment.
We believe that with the launch of the eighth round of the New Exploration Licencing Policy (NELP) bids and the fourth round of the coal bed methane (CBM) bids, the company will continue to receive a steady flow of orders.
On the pricing front, the average day rates for onshore rigs is likely to remain firm on the back of an expected uptick in the exploration and production (E&P) spending due to firmness seen in the price of crude oil.
Valuation
We have revised our earnings per share estimate upwards to Rs48.8 for FY2010 and to Rs54.2 for FY2011 on account of the increase in our average day rate assumption.
At the current market price, the stock is available at 5.9x its FY2011E earnings and an EV/EBIDTA of 5.9x. We maintain our BUY recommendation on the stock with a revised price target of Rs433.