Deep Industries Limited (DEEPINDS.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Deep Industries Q1 FY '26 Earnings Conference Call hosted by AdFactors PR. [Operator Instructions] Please note that this call is being recorded. With this, I now hand the conference over to Mr. Paras Savla, Chairman and MD of Deep Industries, for their opening remarks. Thank you, and over to you, sir.

Good morning, everyone. It gives me immense pleasure to speak to you all today as we present our first quarter performance for the financial year 2026. Thank you very much for joining this call. Our results, press release and investor presentations are available on our website and on the exchanges. I believe you all had a chance to go through it. I am joined by Mr. Rohan Shah, Director, Finance and CFO, who will assist me in answering your queries. After my brief, he will share the financial performance of the company in detail, and we will take your questions thereafter. I'm pleased to present the promising outlook of India's oil and gas support services sector. A robust strategic imperative for national energy security is catalyzing unprecedented upstream activity, thereby expanding the market for our specialized capability. This emerging exploration and production landscape directly translates into robust demand for advanced support services. As India progresses towards energy self-reliance, our sector will play an integral role in unlocking its hydrocarbon potential. We believe this represents an exceptionally opportune moment for strategic investment in India's dynamic oil and gas support services market. Aligning with national objective of self-reliance in hydrocarbons and capitalizing on the available opportunities, Deep Industries Limited is strengthening its presence across value chain through continued offering of value-added solutions for Exploration and Production segment. Continuing with our last year's growth momentum, the first quarter has witnessed robust activities across all segments. We successfully took charge of the Rajahmundry field enhancement operations and have already started with baseline production. We fully expect this to significantly boost our output in the coming quarters. In another significant development, we secured a Letter of Award from Oil India Limited for the hiring of workover rigs valued at INR 45 crores and have secured INR 96.72 crore contract from Oil India for 7-year charter hiring of workover rigs in Assam and Arunachal Pradesh. Adding to this positive momentum, our Prabha barge has been begun generating revenue in May 2025, marking yet another crucial milestone in our diversified operations. These developments collectively highlight our strong operational progress and position us for a very positive financial outlook. On the midstream front, Deep Industries continues to operate one of the India's largest fleet of gas compression units under services contract. We are also scaling up our modular gas processing offering under a Lease-Operate-Maintain model, particularly in high condensate and far [indiscernible] [ gas ] zones. These solutions are increasingly being adopted by PSU clients seeking cost-effective and scalable processing support. Our strategic priorities for the remainder of FY '26 are clearly defined. We aim to maximize asset utilization and safety across our drilling and workover fleet, expand our footprint in EOR and unconventional segments through new PECs, scale up charter hiring development of gas processing plants, and pursue selective value-accretive M&A to broaden our service capabilities. In order, we are confident in our strategy, our people and our execution capability. With a strong start to the year, a favorable policy environment and rising energy demand, Deep Industries is well positioned to deliver sustainable growth and long-term value. With this, I now invite Mr. Rohan Shah to provide a detailed overview of the financial performance for quarter FY '26. Following his remarks, we will be happy to address any questions you may have. Thank you.

Thank you, Paras bhai. Investor friends, thank you for joining the call today. Happy to share with you another stellar quarterly performance of Deep Industries Limited. All the comparisons are on year-on-year basis, which would provide fair evaluation. Revenue for Q1 FY '26 rose to INR 199.5 crores, up by 61.6% year-on-year. Control over costing and operational efficiencies have helped us post 54.7% Y-o-Y growth in EBITDA to INR 95 crores in Q1 FY '26, with EBITDA margin of 44.6%. We have been maintaining EBITDA margins in the range of 40% to 45%, providing us a decent cash flow to strategize our future growth trajectory. Net profit for the first quarter was at INR 61.7 crores, up by 59.3% year-on-year. As on date, our order book stood at INR 3,051 crores, up by 152.15% year-on-year. As we look ahead to the remainder of FY '26, Deep Industries stands on a strong operational and financial foundation. The momentum built over the recent quarters, driven by disciplined capital allocation, efficient cost structures and consistent contract execution, positions us well to navigate evolving market dynamics and capitalize on emerging opportunities. As Paras bhai highlighted, our success is anchored in execution, strength and strategic foresight. From a financial standpoint, we remain focused on sustaining healthy cash flow, optimizing return on deployed capital and supporting the group's growth ambitions with a prudent performance-driven approach. With a clear road map and robust fundamentals, we are confident in Deep Industries' ability to deliver long-term value to all stakeholders. With this, I now open the forum for question and answer. Thank you.

[Operator Instructions] The first question comes from the line of Raman from Sequent Investments.

Congratulations on a good set of numbers. My first question is with respect to the revenue growth. We have achieved around 60-plus percent revenue growth during this quarter. Is this a one-off? Or was this on the back of acquisition -- recent acquisition of Kandla Energy? And can you throw some high -- light on how will be the growth from this quarter onwards?

So the growth is primarily on result of execution of various different contracts on our various service segments, which has been awarded last year and we have executed in Q1. So there is no contribution from Kandla Energy in revenue. So we are expecting Kandla to start contributing from next financial year. So, growth is primarily because of our all varied services contracts and their efficient execution.

So, sir, going forward in the coming quarters, can we expect the growth to be slowed down because you have over-executed orders or you can continue this growth?

So we are expecting growth on a year-on-year basis for more than 30% based on our existing order book itself. And this revenue generation is a testimony of execution of those contracts on time. So, similar kind of growth is expected over a period of time. And for at least next 2 to 3 years, we should continue to grow with the same kind of pace.

Okay, sir. Sir, my next question is with respect to Kandla Energy. One is the previous quarter, you took around INR 208 crores of write-off with respect to the receivables. And you also stated that you are optimistic about getting back half of the receivables. Do we expect that to continue? And can we expect the margins to improve due to this merger?

So the write-off we took in March was primarily of inventory and not of receivables. And for receivables we are continuously following up with them for their recovery. And we are quite positive that we would recover quite a good or decent amount out of old receivables.

And sir, above the margins?

Yes, margins going to improve going further. So the contribution from Dolphin, once it starts increasing in overall revenue pool, overall margin would definitely increase on EBITDA level. And after starting contribution from Kandla also, it will further improve our operating margins.

And sir, with respect to Dolphin, can you give any guidance of how much revenue and -- can we do in FY '26?

Dolphin, we are quite positive on its growth and the revenue largely for this financial year is almost fixed kind of it -- because we have entered into a contract for $30,000 a day and that operation has already started. So, if we put it in numbers, it should be around INR 100 crores a year kind of revenue.

And sir, with the robust demand in the -- across the sector, even with respect to robust demand in natural gas as well as normal oil, do you expect to add any additional fleet? And what will be its contribution in the upcoming financial year?

Yes. So with regards to the demand in the industry pertaining to our kind of services are excellent. And we are anticipating good amount of growth going forward with increasing in demand. So we believe this momentum should continue at least for next 3 years.

And are you planning to add more fleets to your existing fleet?

Yes. On the opportunity basis, we would definitely add new equipment in our fleet. We have recently been awarded with 2 new rig contracts, and we are adding 2 new rigs in our fleet. So going forward as well, as and when opportunity comes, we'll add new equipment in our fleet.

Sir, 2 new rig, is this drilling rig or workover rig? Just a follow-up on...

[Operator Instructions]

Yes.

The next question comes from the line of Nirvana Laha from Badrinath Holdings.

Congratulations on a great set of results. Sir, my first question is on Dolphin and Prabha. So at INR 90 crores to INR 100 crores a year, the quarterly run rate of revenue should be around INR 23 crores to INR 25 crores, right? So, this quarter, it was INR 16 crores. Is it because we started the contract in May and not in April?

Correct.

Okay. And sir, in Dolphin, we see an interest and depreciation cost of INR 2 crores each in this quarter, Q1. So is that the run rate that we can expect for the rest of the year? Or is there an escalation expected there?

It would be in range of that only.

Okay. Okay. And sir, you mentioned that stand-alone revenue this quarter increased because of execution of contracts. Has the PEC contract started contributing? And if so, how much?

Yes, PEC has started with the baseline production. So the growth revenue we are expecting from H2 onwards. So it has started with that minimum fixed price against the baseline production.

Okay. So we haven't recognized any revenues against that contract in Q1?

No, we have recognized revenue, but that is a minimum fixed fee, which we are getting to maintain the baseline production.

Sure, sir. Can you give us the quantum, how much we have [indiscernible]?

That's not material. So it's a significant -- around INR 1 crore a month kind of.

Okay. Got it. And you had said that INR 160 crores CapEx will be required for this contract. So when do you expect -- which quarter do you expect that CapEx to start happening?

So it should start probably later in this financial year and would be completed by next financial year.

Got it. And sir, coming to this quarter, we have seen like an INR 82 crore kind of EBITDA number. You mentioned that the stand-alone growth has come from execution of existing contracts. So just following up on an earlier participant's question, is there a little bit of lumpiness here, which means this 54% kind of growth should not be extrapolated for the remaining 9 months, and we should look at 30%, 35% growth in stand-alone only?

So this kind of growth when we are comparing it is year-on-year. And for us, it has been history -- [indiscernible] that has always been least quarter in our history. So when we are comparing this performance with last year's Q1, this growth appears quite high. But nevertheless, growth we are gunning is -- obviously, it's a great amount of growth, which we are gunning towards. And we expect at least 30-plus percent kind of growth going forward.

Got it, sir. And last question from my side. Kandla Energy, Dolphin, we have certain assets where there could be more write-offs, receivables, inventory, we don't know maybe other assets also. Can you give us an overview of what is the asset pool across these different categories, across Dolphin and Kandla, which may require some kind of write-off? And what is your expectation for write-offs in FY '26, FY '27? I'm sure, sir, when you're looking at the assets and doing budgeting, you will have a kind of figure in mind. Last qu the numbers sort of came out of the blue. Your explanation was well understood. But if you can give us a little bit of understanding of what is the asset pool [indiscernible]

The assets out of these targets are primarily receivables. There arer old receivables for which we have not paid while acquiring this company. So these old receivables, which we believe are a bonus for us with tagging along these acquisitions. And for those receivables, we are trying our hard to recover them. So we have got some decent amount of success in recovering old receivables of Dolphin. And we believe that we should also get some good amount of recovery out of Kandla old receivables as well. Speaking today, we are not anticipating any kind of write-off in FY '26. Anything to say on FY '27 would be too early.

Sure, sir. Could you tell us the amount of the total old receivables between Kandla and Dolphin, the total amount?

I think they are more than INR 350 crore types. Amount exactly I'm not having. It is mentioned in my previous quarter's results.

Sure, sir. Sir, wouldn't it be prudent to have some provisioning for this?

Sorry [indiscernible]

Sorry, last question, ma'am, if I can just complete this. Wouldn't...

[Operator Instructions]

Sure.

[Operator Instructions] The next question comes from the line of Sudeep Anand from Systematix Group.

Many congratulations for a good set of numbers, sir. So, sir, first question on rig, the charter hire rates on rigs are dollar-denominated or rupee denominated and whether we will get the benefit of the rupee depreciation?

So, the recent awards are of workover rigs and their rates are in rupees, not in dollar.

And the previous contract which is going on?

Yes. So we have 6 drilling rigs. So drilling rigs are getting dollar rates. I think 5 of them are into dollar contracts and rest all other rigs are into rupee contracts.

Okay. And sir, the recent contract which we have received from Oil India, when it's going to be deployed?

So we have been given mobilization time of around 5 months.

Okay. So somewhere around Q4 FY '26?

Correct.

And sir, what are our CapEx plan on Dolphin? How many [indiscernible] we are expecting in FY '26 and '27?

So we have planned to add new vessels in Dolphins fleet in current financial year. So we have shortlisted 1 or 2 tugs and 1 or 2 vessels. So, having an opportunity, we wish to add at least 2 of them in this financial year.

The next question comes from the line of Deepak Poddar from Sapphire Capital.

So just first sir, I wanted to understand in terms of Kandla, what sort of contribution we can expect? I mean, you mentioned from next year, we are expecting some kind of contribution, right? So what sort of top line, what sort of margins this company can see for us?

See, it is a little early to answer this question because Kandla primarily we were focusing on get those hydrocarbon fluids, which we use it in our drilling operations. So our first focus would be to take care of our internal consumption and then to scale it up going forward. So on top line or margins, we have not yet reached to the numbers.

Okay. But any rough indication would also be very helpful. I mean, I don't want to pinpoint -- a rough range would also be helpful.

For that also, we'll have to wait for a quarter or so, then probably we can give some idea. Largely, we believe that it should improve our operating cost by -- at least by 1.5% to 2% from next financial year.

Operating cost in the sense, I mean, it will bring some efficiency, I mean?

Correct.

Okay. Okay. Okay. And in terms of your PEC contract, that's a 10-year contract, right? So per year, INR 140 crores revenue accretion can we expect, I mean, from this year onwards?

So that contract will start contributing later on this financial year. So for this financial year, we are expecting around 5 to 6 months kind of revenue from that particular contract. Full year revenue we can expect from next financial year.

Okay. But per annum, INR 140 crores would be a right kind of indication for the year?

Yes, yes, approximately around that only. It can be lower, it can be higher, but largely in that range itself.

Okay. Okay. Fair enough. And given that first quarter we have grown so handsomely, so -- but we're still saying 30%. I mean, are we being conservative when we are saying 30% kind of a growth because...

We are seeing 30% year-on-year, on a yearly basis. So in our business, we always suggest to compare it on year-on-year basis. Quarter-on-quarter maybe sometimes it looks very high or sometimes it looks flat also. But year-on-year, we believe we should be growing more than 30%.

No. The reason I'm asking this because in your second half, this contribution from PEC will also come. And Dolphin contribution will also increase by maybe INR 9 crores, INR 10 crores because we had seen only couple of months of impact in this first quarter. So ideally, you have a lot of levers where your revenue can increase, right?

Yes, yes. So it is always good to be conservative.

Yes, that's what. Fair enough. And just one last small thing. What's the Dolphin margins, sir, at INR 100 crores revenue?

That's huge. I would say it's more than 65% because the contract which we have entered is net of OpEx rate. And so, my margin would be 60%.

The next question comes from the line of [ Shitesh ] Jain from Axis Capital.

Sir, congratulations for your fantastic result. Sir, I wanted to understand more about [ collateral ] licensing policy and how much we are...

Sir, sorry to interrupt. Your audio is breaking a little bit. May I request you use the handset, please?

Yes, am I audible now?

Yes, sir. it is better.

Yes. Sir, can you tell me how much -- [indiscernible] for OALP and how much...

Sorry, your voice is absolutely not audible. Can you say it a little louder?

Sir, may I request to use your handset, please? The audio is a little low.

Yes. Can you hear me?

It is still low, sir.

I just wanted to know that how much field you have bidding in the OALP how much you are planning to bid?

Sorry, I didn't get the question. I'll get you back.

Yes, sir. Please come back in the queue. The next question comes from the line of Rajesh Jain from RK Capital.

Yes, sir. So I started tracking your company just from the last quarter. And I was just going through the company history, and I came to know that the earlier Deep Industries was probably merged into Prabha Energy Limited. And this Deep Industries is the demerged entity of the earlier one, right? Now, are there any related party transactions between your company and Prabha Energy or any of the other related parties? So have you given any loans to any related parties? And if yes, then at what rate of interest?

Yes. So, the recent Deep Industries is the demerged entity, as you rightly said. And with regards to related party transaction, I think all transactions are disclosed in our annual report. We have given loans to Prabha Energy, which were given in past. They are still standing there and they carry rate of interest of 12%.

You have given loan to Prabha Energy at 12% interest rate?

Correct.

Okay. Understood. Okay. Sir, the receivables that you mentioned in the last quarter, that was around INR 363 crores. So in how much time you -- and you clarified in today's call that this year, FY '26, there will be no additional write-offs. So in how much time you are expecting the old receivables to be collected?

So we have given time line of 2 years to collect these receivables. Within 2 years after giving all efforts, we'll decide for next course of action. And I think it would be, again, important to mention here that these receivables are not paid receivables. The acquisition cost is very miniscule while getting these companies along with receivables.

Okay. Okay. Understood. Sir, you have guided for a 30% growth in revenue on a full year basis, now -- 30%, 35%. So how much can the 30%, 35% growth in revenue lead to increase in profit? Will the profit growth be also 30%, 35% or it will be materially more than 30%, 35%?

Yes, it should be a little more than 30%, 35% because we are expecting improvement in margins as well.

From this year itself?

Correct.

Sir, in the last call, you had mentioned about some fundraising plans which you had deferred for -- and you were waiting for better market conditions. So, now that the conditions are slightly better, so what are your fundraising plans now?

So we are just reviewing it. And if we'll find it the correct time, we can think of it. So all approvals are in place. So we'll just have to time it.

Okay. Sir, my last question, if I can just squeeze in the last question.

Sir, sorry to interrupt. May I request you to join the queue for follow up questions.

Okay. Sure.

The next question comes from the line of Manan Shah from Moneybee Investment Advisors.

Congratulations for a good set of numbers. Sir, my first question is on the stand-alone side. Is there any major change in the revenue mix on our stand-alone numbers? Because if I look at our gross margins as well as EBITDA margins at stand-alone level, there is some compression over there. So going forward, is this sort of margins that we should look forward to at a stand-alone basis? Or there has been some major shift or one-off at the stand-alone level? And also, on the other income, what are the major contributions in the other income?

Yes. So, revenue mix is more or less same. So there is no major change in revenue mix. Margins overall are in range, 1% or 2% here and there. So there is no one-off kind of element here in this mix. So it would be more or less in line. As we are into the business which is backed by heavy equipment. More or less you have some of other expenses related to repair, maintenance of those equipments, maybe a little higher in one quarter, a little less in another quarter kind of. So Q-on-Q, I would again suggest, please do not compare Q-on-Q in our business.

Understood. Secondly, my question was on the earlier participant, you mentioned about acquiring some tug and some vessel for Dolphin. What sort of CapEx will this equipment entail?

So, the CapEx which we are eyeing on in Dolphin is in range of around INR 350 crores to INR 400 crores types for acquiring these vessels and -- based on opportunity. So we will follow the same philosophy which we are following in Deep, that we'll do CapEx only on getting firm orders. And I think that philosophy will continue to follow in Dolphin as well.

And in terms of funding for this CapEx?

Yes. So we are exploring various options in Dolphin, including taking debt and other structured products and equity as well. So, depending on the finalization of CapEx, we can take it forward.

Understood. And on the other income, what is the major contribution from other income?

So other income more or less is from treasury. This particular year, we had one item of profit on sale of asset to the tune of around INR 2.7 crores. I think that is one item which is in addition to normal treasury income.

Okay. And in terms of the gas processing facility on charter [indiscernible], any other major contracts that we have built? And then overall, what is the bid pipeline that is looking like for the company?

So currently, we are operating 3 different contracts for this gas processing, one with Cairn Oil & Gas and 2 with ONGC. And currently there is no further bid on those, but we have given expression of interest to a few more contracts.

Okay. And what [indiscernible] -- Sorry, you were saying something?

Those expression of interest will convert into bidding going forward.

Okay. And overall, what is the bid pipeline looking like?