Recommendation: Buy
CMP = Rs 611
Price target: Rs 670
Result highlights:
- Shiv-vani Oil & Gas Exploration Ltd (SOGEL) reported a healthy growth of 73.6% in its consolidated revenues to Rs 126.7 crore in the quarter ended December 2007. In addition to an increased fleet base and higher realisations, the growth was partially contributed by incremental revenues of around Rs20 crore from the coal bed methane project.
- The operating profit margin (OPM) improved by 560 basis points to 41.5% primarily driven by the improvement in realisations and better utilisation of its fleet. The positive impact of the higher realisations is clearly reflected in the 390-basis-point decline in the drilling expenses (and other operational expenses) as a percentage of the sales. The operating profit grew by 100.8% to Rs 52.6 crore.
- The decline in the depreciation charges as a percentage of the sales and the lower effective tax rate enabled the company to report a relatively higher growth of 178.7% in its earnings to Rs 26.7 crore in Q3FY2008.
- In the first four quarters, the consolidated revenues and earnings have grown by 42.8% and 104% respectively. The OPM has improved by 350 basis points to 38.5% during the same period. The company was able to more than make up for the steep increase of 50% in the staff cost by scale benefits (savings of 120 basis points in the overheads cost as a percentage of the sales) and higher realisations (saving of 290 basis points in drilling expenses as a percentage of the sales).
- In term of operational highlights, the company bagged an order worth Rs 261 crore to deploy four onshore rigs with Oil
- At the current market price the stock trades at 16.9x FY2009 and 12.8x FY2010 estimated earnings.
- I maintain Buy call on the stock with a revised price target of Rs 670.
