Shiv-Vani Oil and Gas Exploration Services’ (Shiv-Vani) strong order book of about Rs4,700 crore (8.2x its FY08 revenues) provides strong visibility to its revenues for the next three years.
Furthermore, the capital expenditure (capex) of the company has been backed by the orders already in hand. Shiv-Vani continues to bid for new orders and with a success rate of about 60% the company might see an improvement in its order book going forward.
However, the falling crude prices act as a discouraging factor for the exploration activities and this might lead to a slowdown in the exploration sector in the future.
Though the company’s stock has been hammered in recent times, we continue to believe that the company’s fundamentals remain intact.
However, the high institutional holding, particularly the high foreign holding, remains an overhang on the stock, which has been a victim of the overall collateral damage.
At the current market price of Rs128, the stock discounts at 3.1x its FY10E earnings and is quoting at an enterprise value/earnings before interest, depreciation, tax and amortisation of 3.4x, which is way below its historical one-year forward valuation.
With its integrated business model and as the country’s largest onshore oilfield service provider, Shiv-Vani deserves a premium valuation over some of its global peers, which mainly concentrate on one business segment.
We maintain our BUY recommendation with a revised price target of Rs420 (10x FY10E earnings).