Shiv Vani Oil and Gas Exploration Services (SOGES) registered robust topline growth of 47.2% during Q1FY2010 driven by newer asset deployment and depreciation of the Rupee on a y-o-y basis by around 16%.
Q1FY2010 being a pre-monsoon quarter, Revenue from the Seismic survey was higher which also aided the topline growth.
Increase in Revenue from Seismic survey could also be attributed to higher expenses incurred to complete the minimum work commitments by ONGC and OIL.
EBITDA margins during the quarter registered an increase of 80bp driven by deployment of high end rigs during the quarter coupled with benefits of operating leverage.
Benefits of operating leverage are visible from the fact that there was a reduction in fixed overheads as a % of Sales.
Staff, Administrative costs and other expenditure, as a % of Sales, declined by 61.7bp, 56.3bp and 122.8bp during the quarter, respectively. SOGES reported 50.1% y-o-y growth in Operating Profits during the quarter to Rs114 crore (Rs76cr).
We believe the company would better its performance in the ensuing quarters on deployment of additional assets (rigs). Incremental Revenues from the high-end rigs will also result in an improvement in Margins going forward.
We believe huge investment commitments under NELP and strong order book position imparts strong revenue visibility for the company. Thus, SOGES is a visible play on the substantial upcoming investments in the Indian E&P Segments.
We expect SOGES to record a CAGR of 32.8% and 29.1% in topline and bottomline respectively, over FY2009-11E.
However, on the flip side, the company is mulling an equity dilution for raising funds. We believe the company could retire some part of debt via the dilution.
Though, it would improve the company’s cash flows and growth prospects, it would prove to be a dampener for the company’s financials on account of the resultant dilution in Earnings.
At Rs270, the stock is trading inexpensive at 4.6x FY2011E EPS and adequately factors in all the concerns.
Hence, we maintain a BUY on the stock with a target price of Rs406, which translates into an upside of 50.9% from current levels.