Stock Review: Shiv-Vani Oil

Increasing investment commitments from oil and gas companies under the New Exploration Licensing Policy is a positive

A good set of numbers for the June quarter and an improving outlook have pushed Shiv-Vani's stock by over seven per cent since its results on August 14. Deployment of two more rigs helped the company post a stellar 44 per cent year-on-year rise in consolidated top line to `399 crore. With this, 39 out of 40 rigs are now deployed with customers– the remaining one is expected to be deployed with ONGC during the current quarter.

Prospects for Shiv-Vani will strengthen further with increasing investment commitments from oil and gas companies under the New Exploration Licensing Policy. Shiv-Vani has an order book of `3,200 crore, twice its estimated sales for 201011, which is expected to grow to three times sales by the end of the second quarter of 2010-11. Analysts at Angel Broking estimate `1,500 crore worth of orders to accrue during the second quarter. With Shiv-Vani scouting for overseas acquisitions to enhance technical knowhow in new areas of offshore drilling, these should only rise in future.

Almost 40-50 per cent of Shiv-Vani's contracts are dollar-denominated, making it vulnerable to exchange fluctuations. The company, which has maintained earnings before interest, tax, depreciation and amortisation (Ebitda) margins at 41-50 per cent for the last five quarters, saw margins rise 300 basis points to 44 per cent in the June quarter, led by lower costs and forex gains.

The profit growth has also been robust for the last three quarters (53.4 per cent during the June quarter to 65 crore). Analysts at Angel Broking estimate the company to post profits of  254.4 crore during the current financial year. With blended day rates for rigs expected to rise from $12,650 in FY11 to $15,525 in FY12, further upside seems visible for 2011-12. At `463, analysts are bullish on the stock, which trades at 8.2 and 7.2 times FY11 and FY12 estimated earnings, respectively.