Deep Industries Limited (DEEPINDS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '24 and FY '24 Earnings Con-Call of Deep Industries Limited. We have with us Mr. Paras Savla, MD and CEO, Deep Industries; and Mr. Rohan Shah, Director Finance and CFO, Deep Industries. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Paras Savla. Thank you, and over to you, sir.

Good morning, and hello, everyone. Thank you for joining Deep Industries' Quarter 4 and FY '24 Earnings Conference Call. I hope you had an opportunity to review our earnings presentation and financial results posted on our website and stock exchanges. We are delighted to announce that FY '24 has been a momentous year for Deep Industries marked by commendable financial and operational accomplishments. Let me share some [indiscernible] from this quarter. Our order book has been consistently scaling the height of performance over the last 3 years. In keeping with this, at the end of quarter 4 FY '24, our order book continues to grow standing at INR 1,212 crores, which marks a 12% year-on-year increase. Speaking on another wins of this quarter, we have secured a marquee order of INR 81 crores from Oil India Limited. Amongst other wins, we also continue to maintain a solid bidding pipeline for numerous projects across the country. We have added 2 new drilling rigs in previous quarter, of which 1 has started operation in February 2024, and the other has started operation recently in May 2024. Our company is witnessing highest ever bidding pipeline, which could further enhance the order book going forward. This accelerated growth has been achieved on the back of our strategic and evaluative approach. Our strong numbers and performance speak of how we have not just achieved our targets but have also outperformed the results of the same period last year. We at Deep Industries have always believed in providing value-added services to our clients. Value-added services can give one-stop solution to the client and it reduces costs and saves time for them with efficient output. Value-added services for us becomes margin-assertive opportunity and gives us flexibility to perform in 1 more efficient manner. Taking this vision ahead, we have pioneered in providing entire gas processing facilities on charter hiring basis, and it has opened up great opportunities for us in coming time. We are much pleased to inform that in line with our dividend policy of distributing profit for 15% of net profit, Board has recommended a final dividend of INR 2.44, which is 49% of the face value of INR 5 per equity share subject to shareholders' approval. Regarding Dolphin Offshore, we are pleased to report that our barge asset Prabha has reached Mexico after completing dry docking and is in final refurbishment stage. We anticipate the revenue stream to commence in the first half of FY '25. Furthermore, we have begun exploring platform supply vessels opportunities in both local and international markets. Early indications suggest a substantial demand for PSV services. On the macro front, oil and gas sector PSU have shown significant capital expenditure in the first month of current financial year. ONGC incurred a CapEx of INR 2,318 crores, while Indian Oil Corporation spent INR 2,423 crores. In February 2024, Prime Minister announced that the country is expected to see investments worth $67 billion in the gas sector over the next 5 to 6 years. This focus on domestic natural gas production is expected to attract significant investments given the goal of the increasing gas share in the primary energy mix to 15%. These developments are reassuring growth drivers for our company. They make us poised to capitalize on opportunities by cruising ahead with agility and focus. We are optimistic about the robust bidding pipeline for this. It is expected to remain solid in the foreseeable future and we stand firm to reap the benefits of the promising and seemingly favorable macro scenario. With that, I would like to invite Mr. Rohan Shah, our CFO and Director Finance, to discuss the financial performance for the last quarter FY '24. Thank you, and over to you, Mr. Rohan.

Thank you. Ladies and gentlemen, thank you for joining us today. I'm delighted to present our company's financial performance for the last quarter and FY '24. Following this presentation, we will welcome your questions and insights. To ensure a fair evaluation, we will assess the figures using year-over-year comparisons. Beginning with our consolidated financial performance for the quarter FY '24, I'm thrilled to announce that Deep Industries have achieved exceptional results, surpassing the performance of corresponding quarter from the previous year. Consolidated revenue from operations for the quarter has increased to INR 119.7 crores, making a significant 16% rise compared to the same quarter last year. This growth is attributed to our robust order book and meticulous executions of orders. Notably, consolidated EBITDA for the quarter improved to INR 49.1 crores with an EBITDA margin of 37.5% and a 4% absolute value increase from the quarter ending March 31, 2023. The consolidated quarter EBITDA is appearing low due to a onetime loss of INR 5.8 crores accounted under other expenses on sale of office of Dolphin, which was revalued in books by the erstwhile management in past. For the sake of fair comparison, if we add back the same, EBITDA could have been INR 54.9 crores with EBITDA margin of 42%. The adjusted PAT for the quarter rose to INR 36.1 crores with margin of 27.6%, showcasing a significant 31% absolute value increase from the quarter ending March 31, 2023. For the full fiscal year FY '24, our performance has been remarkably robust compared to the previous fiscal year. Total revenue from operations for this period reached INR 427 crores, reflecting a 25% increase over the prior year. EBITDA for FY '24 rose to INR 195 crores with an EBITDA margin of 42.2%, demonstrating a commendable 38% absolute value increase compared to FY '23. Furthermore, adjusted PAT for FY '24 increased to INR 123.5 crores with a margin of 26.7%, indicating a noteworthy 53% absolute value growth compared to the previous year. This year, we have improved over our return ratios as well. Our ex goodwill adjusted ROCE has improved to 12.4% from 10.27% previous year. And our ex goodwill adjusted ROE has improved to 11.83% from 8.18% previous year. In summary, the performance for the last quarter and full year FY '24 has been outstanding. This year generated the highest revenue and profits in the company's history. With the current macroeconomic conditions and our ongoing efforts and initiatives, we are confident that we'll continue to cruise ahead with agility, strategy and future readiness and we'll remain determined to capitalize on this upward trajectory. With this, I will now open the session for questions from audience. Thank you.

[Operator Instructions] The first question is from the line of Rohan Patel from Turtle Capital.

Yes. Sir, if we look at your margin since March 2022 -- financial year March 2022, it has been 36%, and it has rose to -- in March '24 to 37%. But you look beyond that, it used to be trading in the range of 48%, 50%. So can we expect margins to increase from here? Can we get 7% to 10% delta in margins -- EBITDA margin?

See, our margins would definitely will improve as the year passes. And we have always been maintaining our EBITDA above 40%. So yes, we are very much confident that with new service mix added into our revenue stream, this margin will tend to improve.

Okay. And just to understand, the order book as far as end of quarter 4 is concerned, it stands around INR 1,200 crores. So how long it will take you to execute it? So like what will be the effect in FY '25? So how much will be this order book will get executed in FY '25?

Yes. So this particular order book has execution time line of 2.5 to 3 years. So if you will do simple math, you'll have to just divide this 1,210 by 2.5, which we can expect bare minimum in FY '25 and whatever new orders will be added, it would be in addition.

Okay. And the drilling rigs that you have started which has been operational in this month, so how much will that add into our top line? And what's the margin profile of those activities?

So drilling rig would add somewhere in between INR 2.5 crores to INR 3 crores a month. And 1 has already started in February and second has just recently started last week. So both put together, it can add INR 5 crore a month going forward.

Okay. And what are the approx margin we can expect?

Margins for rig business would be in a range of 40% to 45% EBITDA.

Okay. Okay. Okay. Yes, and the barge that has been started, so how much will that add and what's the margin profile? And are you thinking of increasing the capacity in barge?

Barge has not yet started operation. It is expected to start in short time. So once it will start, we can comment on their absolute margins. But our expectations are EBITDA around 60%, 65% for that particular asset.

Okay. And I just wanted to understand -- I want to understand the general scenario and outlook of the oil and drilling industry as well as servicing industry in that aspect. So if you can help us understand the trends that are going on right now?

So the recent trend is very much positive and in our favor. So the demand has increased a lot for our kind of services. We are witnessing it since last 1 year that our order book is constantly growing. And our demand -- our bidding pipeline has also increased a lot. Currently, we are having bidding pipeline of almost INR 1,000 crores, and we believe a good amount of conversion out of it in coming time. So overall industry is in, I would say, boom and our services since we are more focused on gas in addition to oil, so our services demand is excellent.

[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, just first up, you mentioned about your order book. It's constantly growing and bidding pipeline is also good. So any sort of target we have for FY '25 and what sort of order book closing we might look at or what sort of order inflow we are looking at this year?

We cannot have any definitive numbers or what kind of order flow, but we have a large intuitions or we have large confident that a substantial amount of the order book can get converted in our favor. But to put that in absolute terms on numbers, it would be a little difficult.

Okay. Okay. So what you're trying to say substantial amount of bidding pipeline that you are doing, that you can convert, right?

That's right.

Okay. Okay. Okay. Understood. And this quarter, sir, adjusted EBITDA margin was 42%. I mean your exceptional loss is about INR 6 crores, right? That was on account of some sale of office, right?

Correct.

So your -- so you have included other income also in that, right?

Yes, yes.

Okay. Okay. Including other income, we are saying 42%.

Correct.

Okay. And how do we see that EBITDA margin also you mentioned will tend to be improved. So what is the range that we'll be comfortable with or we aspire for maybe in FY '25-'26 or yes...

Yes. So it will definitely improve from this level with an addition to revenue and profits from Dolphin where we are expecting high margin in comparison with this particular margins. So overall, at console level, margin will definitely improve beyond 42% to 45%.

42% to 45%. So that's the range we might be working with or -- I mean, we are saying it will improve from these levels, 42% to 45%?

So in FY '25, we expect it should reach 45%. And in FY '26, it can further improve as well.

Understood. And this would include other income, right? I mean, when you're saying 45%, it would include other income?

Correct.

The next question is from the line of [ Gaurav Sachdev ] from [ Sajak ] Fund House.

Yes. Sir, any update on the tenders in Kuwait for rigs?

No, those tenders are over, and we didn't get business of that region.

Okay. And sir, what is the expected revenue from the barge on the annual basis? If it has worked on a full annual basis, what is the expected revenue from the barge?

On full year basis, revenue of almost INR 90 crores to INR 100 crores is expected from that particular barge.

Okay. And sir, what is the amount of total investments right now and cash in hand right now?

You mean for -- as a group?

Yes.

Yes. So as a group, we have investment of more than I believe INR 140 crores, I'll have to check on exact numbers, but it is more than INR 140 crores.

But sir, how we are generating around INR 40 crore other income from this investment, what kind of instruments we have invested in?

Sorry, INR 196 crores is the total investment. And the other income is largely interest and mutual fund income.

Okay, mutual funds. Okay. And sir, in the last con-call, you talked about 50% EBITDA in the Dolphin International. But in the operational times when Dolphin used to work, it used to get EBITDA from 20% to 30% range, then how you're talking about 50% EBITDA margin in the Dolphin International?

So more than 50% we said for a particular barge. In earlier times, Dolphin used to be there in various different services, including EPC jobs as well. So their overall EBITDA was less but these margins we are expecting from barge, which has a good potential margin business. And we being Deep Industry's mindset, we always look for good margin business only, and we'll start activities in Dolphin with good margins only.

Okay. And sir, what is the expected top line growth for the FY '25? What is the expected top line?

So yes, we are quite bullish on FY '25-'26, both, and we expect minimum 25% growth, I'm saying minimum.

And this 25% includes the revenue from Dolphin also or that is excluded that -- you are excluding that?