Jindal Drilling & Industries Limited (511034) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Jindal Drilling & Industries Limited Q1 FY '27 Earnings Conference Call hosted by Antique Stock Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference call over to Mr. Varatharajan from Antique Stock. Thank you, and over to you, sir.

Thank you. Very good afternoon, ladies and gentlemen. It's a pleasure to welcome you all to this first quarter FY '27 earnings call of Jindal Drilling & Industries Limited. Kaushal from Jindal management to deliver his opening remarks. Over to you, sir.

Thank you, Mr. Varatharajan. Good afternoon, shareholders, and thank you for joining our earnings call. The first quarter of FY '27 was fairly good for the company. The key development apart from financial results has been the receipt of a contract from ONGC for 1 of the rigs owned by General drilling -- that rig is currently under refurbishment in UAE, and we expect to deploy it as early as October of 2026. We Apart from that, results were broadly in line with expectations. We remain the largest offshore jack-up drilling contractor based in India with ONGC. We have 5 rigs on long-term contracts, which are currently deployed with ONGC with the sixth rig having recently received a new contract. In the presentation, we've put out the order book and bifurcated it rig wise and day rate wise. So that 1 is able to assess how the revenue will shape up going forward. The order book stands at INR 1,310 crores and we've also bifurcated the order book here. A key point to note here would be that 3 of our rigs are expected to be rehired within the current financial year. Out of the 4 rigs, which were getting the higher in the current calendar year, more or less, 1 has recently received a contract, and we are hopeful that we'll get contracts for the remaining 3 rigs as well. for Discovery One and general Star, there has been a slight extension in the duration of the contract, which we have also put out in the presentation. On the financial highlights, revenue is broadly constant with the previous couple of quarters, the dip, which is visible in the third quarter of FY '26 was on account of reversal of an other income which we had booked in the second quarter of remains in line. The variation in EBITDA is primarily on account of the variation in other expenses, which is caused by the ForEx fluctuation, which was more present in the last quarter of the previous financial year and less prevalent in the first quarter of the current financial year. On the next slide, we've put out the profit and loss comparison and followed it up with the annual financial highlights. EBITDA mix is given on the subsequent slide with most of the EBITDA coming from the rig cement. We remain cash-rich organization despite having acquired 1 rig in FY '25 and conducting refurbishment exercise of the drag. We expect the cash position to improve going forward. That concludes the presentation, and I would now request Mr. Varatharajan to kindly open for questions.

[Operator Instructions] The first question is from the line of [ Pankaj from Avis Capital. ]

I have 2 quick questions. One is regarding -- I think we have 3 rigs which are due for expiry in 2026. So just wanted to understand what is the likelihood of these contracts getting renewed? Are we expecting any idle time for the renewal? And what are the rates we are expecting for renewal of these rigs. That's question one. Question 2 is regarding what kind of CapEx we have actually spent on refurbishment of Pioneer, I believe this is done in UAE and related to question are we on track to meet the Q3 deadline, which we have kind of worked with ONGC?

On the first question regarding the higher of the 3 rigs, which is expected in the later part of this year. There will be a refurbishment period of 4 to 6 months once the rig gets the higher. In that 4- to 6-month period, there wouldn't be any revenue, which would accrue to us because the rig would be under refurbished. The likelihood of the rig getting redeployed is fairly good. Subject to whatever nuances that our customer keeps coming up at various points in time in various tenders. Despite that challenge, we remain fairly confident that we'll be able to redeploy these 3 rigs. The rate is something on which I cannot comment because if you look at our order book on Slide 5, you will see the massive fluctuation in the day rates despite these rings getting redeployed in a similar time period. On the refurbishment of general Pioneer, we've spent a fairly decent amount through our joint venture, but I would not like to comment on how much we've spent. We expect the refurbishment exercise to be completed by first week of September, and the point of this rig to take place in the month of October.

So related outcome possibly could be that our H2 revenue will be severely impacted because 3 out of 6 rigs would be kind of out of revenue in H2. Is my understanding right?

Yes, absolutely right. These 3 rigs will get be hired, they will go into refurbishment, no revenue will accrue till they deployed -- so revenue will decline in the second half of this financial year. However, I do not believe that EBITDA will decline in proportion to the decline in revenue because right now, we are earning most of our EBITDA from the rigs which we own or from the rigs that are deployed at a good rate. So we will have a de-hiring of Discovery One, which is a dehiring which we own. We will have a rehiring of Virtue 1, which is rented, but on a good rate. And we will have dehiring on general Star, which is a rig, which we have rented, but it is not on a good rate. So although there will be a decline in revenue from 3 rigs, the decline in earnings would primarily be from 2 rigs. Therefore, earnings will not decline in proportion and you might even see an increase in the EBITDA margin, although absolute earnings would see a decline in the second half of the current financial year.

Got it. Got it. So will it be possible for you to give some number in terms of the revenue loss, which we are going to -- I'm not sure whether we should be calling out a revenue loss or not, whatever the deficit is going to be and the corresponding EBITDA deficit, which we might see because...

So that calculation because the order book has been bifurcated year-wise in Slide 6 of the presentation. So that will broadly be the revenue for the relevant financial year still a new contract is received. And we've guided earlier that you should target a blended EBITDA of 35%. I think you will be able to make a fairly accurate end of the way the revenue will shape up in the second half of the current financial year.

[Operator Instructions] We will take our next question from the line of [ Gaurav Ashok Bhansali from Augment Enterprises. ]

I just wanted to ask you about the recent order -- recent award we've got -- it's at a day rate of INR 45.83 lakhs so will we be able to enjoy the dollar depreciation? INR depreciation? Or is it a fixed day rate of INR 45.83 lakhs?

It's at a fixed day rate of INR 45, 00,000 approximately. This contract was denominated in IR.

Yes. Okay. And sir, I also wanted to ask you, like how many rigs in the market are available for higher other than our portfolio because that would help us in assessing because Indian rates are way below the way below the global rates. So just outlook on the market for the next 6 months, 1 year from now?

Generally speaking, what has been the trend in the period apart from the last 2 financial years has been that whenever a rig goes off hire, ONGC comes up with a new contract and the rig, which has been rehired, gets deployed on the new contract. However, that has not been the case in the past 2 years, all drilling contractors have had problems in redeployment of the rigs because of various reasons, which is all industry participants. However going forward, we believe that next rings, which are getting be hired, they should be rehired because of the Samudra Manthan exercise the Government of India has announced in the recent. Typically, you want the number of rigs which are getting delayed. That number is not available with. But if it send an email I'll reply.

[Operator Instructions] Our next question from the line of [ Pankaj from Avis Capital. ]

Two quick more questions. One is, I think we saw a loss coming from 1 of our JVs, some INR 5-odd crores. in this particular quarter, which is different from what we have been doing in the past. So is there a reason? And are we expecting that to kind of come back to profits in coming times. That's question one. Question 2 is I think our cash position has improved meaningfully. And also, I believe the debt has gone down, which obviously allows us for flexibility to kind of raise more funds. So my question related to this is that are we planning for any acquisitions, any rigs or anything on that front? And last question on this is, I think we have a ONGC dispute, which is going on. Any update if you can get on that, that would be great. And related question is that is there any potential...

Just interrupt -- if you can just ask questions 1 by 1 rather than combing questions into 1 question because it just makes it difficult for me to address each of these points.

No problem, sir. You may like to address the question on that JV...

Second was the loss in the joint venture. The joint venture, which is been the reason for the loss in the current quarter is currently doing the refurbishment exercise for the rig general pioneer. That joint venture was the seller of the rig. And as per our sale purchase agreement, they had to provide the rig in a certain condition. The loss in that entity is on account of the refurbishment expenses that are being incurred by that entity, so as to bring the rig into a certain condition before Jindal Drilling delivery of the rig. That is the first response. The next question was -- what's the difference to the cash Alan. As of now, we are not looking at any acquisitions right now. we are only looking at the ability to redeploy the 3 rigs, which are going to get hired in the later part of this financial year. The reason why that is the case is because we want to minimize risk. So instead of having more assets which we have to deploy with ONGC, we are focusing on getting those assets deployed, which are going to get higher in the later part of this financial year. Further, you should also bear in mind that because these 3 rigs are getting rehired, they will go into refurbishment for refurbishment, we need to conserve cash because it's the nature of this industry, that refurbishment exercise has to be undertaken after every contract.

Generally, sir, what is the refurbishment cost on an average for a rig once it goes for refurbishment?

Considering the recent inflationary trend and the increase in labor cost and the transit cost of materials, I think a figure between INR 90 crores to INR 110 crores would be a fair estimate per rig.

Okay. Okay. So that's very -- quite significant. Got it, sir. Can you ask my last question, sir? Okay. If you can just give us a quick update on the ONGC dispute, which I believe Supreme Court is pending in Supreme Court. So if you can give us some status. And second, best of my understanding, other than legal costs, there is no potential exposure, which can flow on to us. Is my understanding right on that?

There is no material update on the legal dispute because that case has been continuing for the past 14, 15 years. we can only hope that it gets concluded sooner rather than later because of the legal cost that the company has been bearing for the past 14, 15 years. On the impact that it can have. Right now, we have received funds -- but if we do lose the case, the possibility of which is remote, then we'll have to repay that back to the customer.

So we have received the fund.

Possibility of that happening is less as per our assessment and the assessment of our lawyers because we've been winning a at every stage over the past 14, 15 years till it reached the Supreme Court for the second time. It was earlier in the Supreme Court, and it was referred back to arbitration. We won in arbitration again. And then when it went to Supreme Court on account of an appeal from ONGC. We don't expect any material negative impact to take place.