Deep Industries LtdQ2 FY23Oil

Deep Industries Ltd

Q2 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

N/A

Order

Yes

Capex

Yes

2 of 4 growth signals are positive.

Revenue guidance

Category 2

→The company provides conservative revenue growth guidance of around 20% for FY24 and the next 2-3 years.
→Current order book is strong and growing consistently for 9 quarters, providing good visibility for revenue over next 2.5-3 years.
→New JVs targeting higher-capacity drilling rigs and EPC business expected to contribute positively to growth.
→Revenue from Dolphin Offshore is expected to start from the second half of FY24, estimated between Rs. 30-50 crore this year.
→The bidding pipeline is robust with over Rs. 500 crore worth bids expected to convert into orders soon.
→The 2000 HP drilling rigs and higher-capacity contracts will open larger market opportunities adding to growth.
→Conservative approach maintained on guidance despite potential for higher growth.
→Overall, strong market demand driven by government focus on increasing natural gas usage and related infrastructure expansion supports growth.

Category 3

→The company conservatively guides for a **20% revenue growth** for FY24 but acknowledges potential for higher growth given a strong order book and bidding pipeline.
→EBITDA margins are expected to remain strong, **above 40%**, with possibilities of slight improvement.
→Dolphin Offshore is expected to start contributing revenue from the second half of FY24, estimated between **Rs. 30 crore to 50 crore** this year.
→Synergies from recent JVs (with Focus Energy and Euro Gas) are expected to contribute positively, though exact margin improvement is not yet quantified.
→The company aims to improve ROCE (currently ~12%) via asset-light models in the next 2-3 years, potentially enhancing profitability.
→Order book conversions and new orders in JV segments (contracts typically Rs. 150-250 crore) should drive revenue and profit growth.
→Operating performance and margin improvements are on track with historically strong execution and order flow.

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→There is no explicit mention of any current or future planned fundraising through debt or equity in the provided transcript.
→The company mentioned having net cash on hand of around Rs. 100 crore as of now.
→CAPEX plans are primarily funded through confirmed orders, with no indication of needing additional debt or equity.
→For Dolphin Offshore, CAPEX of around Rs. 35 crore is currently ongoing, but working capital requirements and funding details are still early to determine.
→The company prefers an asset-light model in some areas, which might reduce capital intensity and funding needs.
→Overall, the company has not indicated any intent to raise debt or equity funds imminently or in the near future.

Yes

→Deep Industries' order book stands at Rs. 1,160 crore, marking a 52% year-on-year increase and an 8% quarter-on-quarter increase.
→The company has consistently increased its order book for 9 consecutive quarters.
→A significant recent order includes a Rs. 130 crore contract from ONGC for charter hiring of a 90 metric ton mobile drilling rig.
→Order book execution timeline spans 2.5 to 3 years with about 48-50 different ongoing contracts.
→Segment-wise order book breakup: Gas compression ~46%, rigs ~42%, and the remainder from integrated project management and gas dehydration.
→Bidding pipeline exceeds Rs. 500 crore with expected conversion into orders within a quarter.
→JV contracts typically range from Rs. 150 to 250 crore per contract with positive wins expected during the year.
→Mobilization for new orders is expected to take more than 6 months.

Yes

→The company plans CAPEX of around Rs. 80-90 crore for the current financial year, driven by confirmed orders (Page 9).
→CAPEX includes around Rs. 40 crore for one drilling rig (Rs. 130 crore order) and about Rs. 20 crore for the compression segment; remaining depends on new awards (Page 16).
→Rs. 35 crore CAPEX is ongoing for refurbishment of Dolphin Offshore assets; this will be capitalized (Pages 12, 17).
→For Dolphin acquisition, CAPEX is currently focused on reviving existing equipment before operation commencement (Page 12).
→Additional future CAPEX will be planned post winning new orders; asset-heavy business with CAPEX closely tied to order confirmations (Pages 9, 6).
→The company is exploring asset-light models like leasing rigs to improve ROCE but balancing margin impact (Page 15).

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