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Shiv-Vani Oil – Gas Exploration – BUY – BNP Paribas

October 8, 2009

After numerous delays in commissioning the rigs for the ONGC order, SVOG has chartered four rigs in July 2009, with two rigs expected to commence drilling in October 2009 and the other two by December 2009. In spite of these delays, SVOG reported a 14% increase in revenue on a q-q basis with PAT growing by 34% for the same period. Improved profitability is attributed to the strong EBITDA margins at ~42%, which in turn was a result of the commencement of the high margin ONGC order.

SVOG’s current order book stands at ~INR38,000m or ~4.6x its FY09 revenue. In addition, the new order bid book stands at INR30,000m and we estimate a 30% success rate, resulting in new orders of ~INR9,000m in the next 12 months.

Discussions with management indicate that the company is looking to raise USD75m; the funds shall be utilized for debt repayment and for the purchase of new equipment in expectation new order wins.

Shiv-Vani Oil & Gas is expected to earn an EPS of Rs 52.62 and Rs 71.08 for FY10 and DY11 respectively. At 6x P/E SVOG is trading at its historical trough multiples and thus a Target Price of Rs 420 [26% upside from current levels]

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