While major oil and gas exploration companies like Oil and Natural Gas Corp. and Vedanta Ltd. have seen their oil and gas production decline due to mature fields in recent years, service provider Deep Industries has seen substantial growth.
Share price of Deep Industries has outperformed that of its key oil exploration customers, and is up over 90% year-to-date.
Here is what's working for this small cap stock:
Demand Remains Strong
Deep Industries’ demand remains strong, said Chairman and Managing Director Paras Savla. Big oil exploration firms will need the company’s services during periods of steady as well as declining output, he told NDTV Profit. Thus, efforts of some of its key clients—ONGC and Vedanta—on enhancing production signal a positive outlook for the company.
Furthermore, the government's Open Acreage Licensing Program, which will open its bidding next year, also offers fresh opportunities, Deep Industries said in its earnings concall at the end of the first half of the fiscal.
Order Book
The company's order book grew 119% year-on-year to Rs 2,622 crore in the second quarter of fiscal 2025, with expectations for further growth from its Rs 800-crore business bidding pipeline.
Deep Industries has ventured into a new service category; Production Enhancement Contracts. It expects valuable additions from the category in the next three-six months. A major order in this new category is a Rs 1,400-crore contract from ONGC to enhance production at its mature Rajahmundry field. The contract is expected to generate over Rs 100 crore annually, with most revenues booked in the first 10 years as production ramps up.
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Financial Growth Expectations
Deep Industries is set to register a 35% year on year growth in financial year 2025 and 2026, it said. The company estimates its fiscal 2026 top line to be around Rs 800 crore, compared to its fiscal 2024 top line of Rs 380 crore.
In the last three years, Deep Industries revenues and net profits have grown at a compounded annual growth rate of 15% and 30%, respectively.
The company has historically operated in four major service categories that have had an Ebitda margin of 25-60%. Its new production enhancement category is expected to maintain above 40% margins as per the management.
Barge Asset To Finally Generate Revenues
After several delays, Deep Industries' 'Prabha' barge is set to start generating revenues from the fourth quarter. Initially expected to be completed in the first half, this accommodation barge with a 275-person capacity and material handling capabilities is in high demand. Management expects daily revenues of $50,000 (Rs 42.19 lakh), with a 60% margin potential and contracts lasting up to five years.
Dolphin Acquisition To Benefit Via Synergies
The company is also optimistic of its recent acquisition of Dolphin Offshore, which helps expand its offshore service portfolio. The company has already started generating operational revenue from Dolphin and is confident that synergies would be RoE-accretive for the company as a whole.
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