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Research
Shiv-Vani Oil & Gas - New orders beckon - Buy - Elara Capital
Posted On : 2010-05-26 11:59:16( TIMEZONE : IST )
- Rating : Buy
- Target Price : INR600
- Upside : 42%
- CMP : INR424 (as on 14 May 2010)
A strong FY10 ends on a weak note
Shiv-Vani reported its Q4FY10 results with revenue coming in at INR3.0bn as against our estimate of INR3.5bn mainly due to locational transfer of rigs which led to revenue losses. Overall, Shiv-Vani ended FY10 with 43% YoY top-line growth driven mainly by asset additions. The company surprised us by its Q4FY10 EBITDA margins of 50.6% vs our expectation of ~43%. We believe that this deviation was mainly a function of the lumpy nature of revenue booking in this industry as we also believe it is much more prudent to look annual performance. Shiv-Vani's FY10 EBITDA margins were 44.7% while the management has guided towards a ~45% EBITDA margin range for FY11 and FY12. The Q4FY10 net profit was INR470mn while we estimated INR554mn, the shortfall coming in mainly from lower-than-estimated revenue.
Catalysts – New orders, margin expansion
Apart the current order book of ~USD800mn (~3x the FY10 revenues), Shiv-Vani has bid for orders worth INR30bn (USD675mn) and we expect Shiv-Vani to win orders worth at least INR10bn in FY11. Our analysis shows that Shiv-Vani would need five rigs (~USD100mn) for starting these new contracts and the company may have to opt for the traditional 70:30 debt/equity fund raising. These new asset additions can lead a 26% YoY growth in FY12. Deployment of seismic assets in the Middle East during monsoons and EBITDA margin expansion due to better revenue mix would be further triggers.
Maintain Buy for impending re-rating, limited downside
We maintain our Buy rating and TP of INR600/share (11.5x P/E) on Shiv-Vani. Shiv-Vani is on course for a valuation re-rating as the market is now starting to appreciate the revenue and earnings visibility. We also see very little downside for the shares as our analysis of the worst-case FY11 earnings offers only 9% downside from the current levels. Moreover, the recent mishap with Aban Offshore may now force investors to look at Shiv-Vani as it is a more attractive and certainly a less risky play in the booming Indian oil services sector.
