Deep Industries - an integrated OIL & GAS service provider

Deep Industries - an integrated OIL and GAS service provider

About the company

Deep Industries Ltd is Oil & Gas Company with business interest in Oil & Gas Exploration and Production, Air and Gas compression, & Workover Drilling.  Deep Industries is a pioneer in the service sector of oil and gas fields, largely in Gas compression services. The Company also provides work-over, Drilling Rig and allied services and mainly caters to continually rising demand for Oil and Gas Field Services needs. Deep Industries is a major Gas Compression services supplier in India and has also extended its Oil Field services to work over activities, from their Drilling to Dispensing plan.

The Company has also expanded their arms to

• Gas and Coal Bed Methane.
• Engineering Services to various Public Sector and Private Sector Undertakings in India.
• Exploration and Production Business of Oil,

The company has four main lines of business:

• Gas compression
• Workover rigs
• Marginal gas fields,
• Coal-bed methane (CBM).

In the gas compression business, the company operates, maintains and owns a compressor fleet, with capability ranging from 100 horsepower (HP) to 4000 HP.

Deep Industries has three subsidiaries:

• Deep Natural Resources Ltd
• Prabha Energy Pvt Ltd.
• Deep Energy LLC, USA,

Deep Industries Limited is one of the Multibagger stocks recommended by Dynamic Levels; the share price has touched a 52 week high of Rs. 215.80 on 19-Nov-2015 and a 52 week low of Rs. 60.35 on 07-May-2015.

The Business

GAS COMPRESSION BUSINESS:

Deep is the major Contract Compression service provider in India. Presently the Company is executing a range of natural gas compression projects with various Public and Private sector companies in India.

The Company executes contract compression on turnkey basis, which includes

• Installation, Commissioning and Operation
• Maintenance of gas engine driven compressor packages.
• Supply of Equipment,

GAS DEHYDRATION BUSINESS:

Deep Industries is the only company in India to give Natural Gas Dehydration services on contract. The Gas Dehydration Business opens an enormous opportunity as most Public Sector Undertaking would be happy to contract this business considering legal compliance requisite.

DRILLING AND WORKOVER BUSINESS:

The Company has nine work over Rigs of various capacity and 1 Drilling Rig operating with different renowned E&P Companies in Oil & Gas sector all over India. Deep has done a range of Drilling & work over operations. DIL has been effectively in serving long-term contracts since last 11 years. The Company has bided for various drilling contracts within India as well as across the globe.

OIL AND GAS EXPLORATION AND PRODUCTION BUSINESS:

Deep and its secondary enterprise’s upstream portfolio include both conventional and unconventional assets with significant acreage of good production blocks & onshore exploration. The total area operated by Deep is over 11800 sq km with prognosticated hydrocarbon resources of over 1350 Million Barrels of Oil Equivalent (MMBOe). Out of 10 blocks, 3 blocks are in development stage, one in appraisal stage and rest in exploration stage. Besides, one more CBM block is being acquired by the company which is in development phase. Deep has a strong management team with decades of experience in oil & gas and CBM asset development.

Clients

• ONGC
• CAIRN
• OIL INDIA LIMITED
• GAIL
• GSPC
• ADANI
• PETRONET
• GEO ENPRO

Financials

Financially, Deep industries have shown positive growth, with operating profit increasing from 40.06 to 42.80 for year 2015. The company’s total income from operations for FY15 grew by 11.55% and reached to Rs. 101.26 crore from Rs.90.78 crore, in the previous fiscal year. The earnings before interest, exceptional items & tax also increased to Rs. 44.13 crore from Rs. 41.27 crore, representing a growth of 7% year on year. The profit after tax of the company stood at Rs. 21.23 crore compared to Rs. 19.99 crore in FY 2014 an increase of 6.20% from previous year, the increase in profitability is on back of increase in net sales.

Conclusion

The outlook of the company is looking promising over next four to five years. The Oil & Gas sector in India is full of new opportunities across its value chain and sub-sectors such as opportunities for foreign investments and technology partnership in the upstream sector, opportunities for E&P services and equipment companies. This industry offers significant future opportunities for both Indian and International Companies driven by factors such as vastly unexplored and underexplored sedimentary basins, Unconventional hydrocarbon exploration activities gaining momentum in India.

Gas Dehydration business is a great opportunity that lies ahead for Deep Industries Ltd.The company is planning to raise its compression & drilling capacity. Deep is also looking for massive expansion in Gas Dehydration Service business considering various opportunities in forth coming year. Deep Industries focuses on developing and exploring the acreages that it has acquired in NELP and CBM rounds. The Company is also looking to buy gas & producing oil areas worldwide.

Further expansion in oil and gas services sector in India

• Focus on development while maintaining margins
• Expansion of assets base to cater to new opportunities in all three segments of Oil and Gas Services
• Increase market share in Gas Compression Business
• Expand Rigs business by capitalizing new opportunities created by increased demand on exit of one of the existing players
• Leverage experience and track record in the gas compression to get new contracts for gas dehydration

As per our estimate, the stock at CMP of 167 is trading at P/E of 16.05; The Debt-Equity ratio is 0.52 with interest coverage ratio of 5.26 which shows that Deep industries can easily pay interest on outstanding debt. The return on equity is 9.67%.

On the basis of above factors we recommend a Buy in Deep Industries for long-term with a target of Rs. 210.