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Research
Buy Shiv Vani Oil & Gas - Strong Q1 flags off a robust FY11 - Elara Capital
Posted On : 2010-08-17 20:02:18( TIMEZONE : IST )
- Shiv-Vani Oil & Gas
- Rating : Buy
- Target Price : INR600
- Upside : 39%
- CMP : INR432 (as on 13 August 2010)
Q1 show gives more ground to FY11 guidance
Shiv-Vani reported its Q1FY11 results with revenue coming in at INR3.96bn as against our estimate of INR4.0bn with the strong YoY and QoQ growth driven by the addition of new rigs to the fleet. The EBITDA margin was healthy at 43.7%, affirming our assumption that it would improve as higher power rigs start operating. The PAT came in at INR645mn vs our estimate of INR610mn. In our view, the Q1FY11 performance will give the Street a lot of confidence about Shiv-Vani's ability to meet its FY11 revenue guidance of INR16bn and PAT guidance of INR2.5bn. However, we would like to point out that Q1 would be followed by a typically weaker Q2 due to lower seismic activities during the monsoon months.
Recent fund-raising hints at likelihood of new order additions
Shiv-Vani recently raised USD80mn through FCCBs which we believe may lead to some new asset additions driven by new orders. Apart the current order book of ~USD800mn (~3x the FY10 revenues), Shiv-Vani has bid for orders worth INR30bn (USD675mn) and we expect the company to win orders worth at least INR10bn in FY11. Our analysis shows that Shiv-Vani would need 4-5 new rigs for these orders which would cost ~USD80-100mn. These new asset additions can lead a 26% YoY growth in FY12, based on our estimates. 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 target price of INR600/share (12.0x P/E) on Shiv-Vani. We believe Shiv-Vani may start re-rating post this Q1 performance as the market now starts to appreciate the execution and revenue and earnings visibility. We also see very little downside for the stock as our analysis of the worst-case FY11 earnings offers only a 9% downside from the current levels. Shiv-Vani remains our top pick in the oil services sector driven by its high earnings visibility, low risk-profile and attractive valuations.
