SHIV-VANI Oil & Gas Exploration Services: Join The Treasure Hunt

Shiv-Vani will generate healthy returns over the next 18-24 months, given its bulging order book and favourable outlook for the E&P sector

SHIV-VANI Oil & Gas Exploration Services is one of India’s leading companies providing integrated support services to onshore petroleum exploration companies. It clocked a turnover of Rs 400 crore during the year ended December ’07. It is the only player in the country to provide integrated services for developing coal bed methane (CBM) projects. Considering its bulging order book position and favourable outlook for the exploration and production (E&P) industry in India, the company will generate healthy returns over the next 18-24 months.

BUSINESS:
Shiv-Vani offers integrated service solutions for exploration of oil and natural gas till their exploitation. Its involvement in an E&P block starts with seismic surveys and continues till drilling, apart from repair and maintenance of oil wells. Shiv-Vani owns 25 onshore rigs, with seven more set to join the fleet by June ’08. It has tied up with Express Drilling of the US to emerge as the only integrated CBM services provider in India. It mainly works for PSUs like ONGC and Oil India. It operates from three bases and owns 600 transport vehicles, which makes it easy to move equipment to remote locations. It is executing a few contracts in Oman and the US; these accounted for a quarter of its revenues last year.

GROWTH DRIVERS:
India’s exploration industry has received a boost due to the government’s New Exploration Licensing Policy (NELP). Considering high crude oil prices and commitments of E&P companies under earlier NELP rounds,the boom in the domestic E&P sector may continue. This will drive demand for services provided by Shiv-Vani. Its unexecuted order book stands at over Rs 3,500 crore, of which, 70% will be executed in the next 24-30 months. Its first CBM contract, worth Rs 650 crore, with ONGC started in December ’07. This will boost its revenues and profits from March ’08 quarter onwards.

FINANCIALS:
Shiv-Vani has registered a cumulative annual growth rate of 78.7% in net profit over the past four years, while sales grew 42.8%. During the 12-month period ended December ’07, its net profit more than doubled to Rs 76 crore, while net sales surged 44% to Rs 395 crore. The company plans to close this accounting year for the 15-month period in March ’08 .

VALUATIONS:
Shiv-Vani is trading at 28.1 times its trailing 12-month EPS. In comparison, at CMP, its forward P/E works out to 13, based on FY09 estimated earnings. We estimate Shiv-Vani to close FY09 with topline of Rs 1,000 crore and net profit of Rs 200 crore. This provides upside potential for long-term investors. The estimate accounts for 25% equity dilution over the next 18 months on conversion of outstanding convertible bonds and warrants.