Major Order Win Boost For Deep Industries
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00:00Hello and welcome. You are watching the SMID show here on NDTV Profit. I have with me Mahima
00:12Varshajani. With me is also Mihika Barve and we have with us Rohan Shah, Director, Finance
00:18and Group CFO at Deep Industries. Now, very large order in comparison to their current
00:23order book of nearly 1250 crore. The new order is worth 1400 plus crore. So, we are going
00:29to talk to Mr. Shah about this order. It's an interesting one. Now, roughly 3000 crore
00:36in terms of market cap for viewer perspective, but a 1400 crore new order win. Mr. Shah,
00:42talk to us about this order, what it entails and how much revenue on an annualized basis
00:48is this likely to generate because it's a 15 year tenured order. So, talk us through
00:53a couple of those aspects. Yeah, we are quite excited on winning this order from ONGC. So,
01:00this particular contract is for production enhancement of their mature fields. So, with
01:07this contract, ONGC wishes to increase their hydrocarbon production and to develop further
01:14their reserves. So, this particular contract can increase the production of mature fields
01:21over a period of time and in that we can get our service revenue as a share of incremental
01:27production. Yes, this contract is for almost 15 years, but we are quite confident that
01:34we can complete this contract well within time or even before the given timeline. All
01:41right. And Mr. Shah, this is the first production enhancement and contract that you have in
01:48your basket. So, I want to understand that, how do you plan to play this from a long-term
01:54perspective? Also, do you expect more such orders going forward? Yes. So, this is for
02:00the first time ONGC came up with a production enhancement contract and this is the first
02:05round with which ONGC has started this and we are expecting a few more rounds coming
02:11from ONGC itself. And with other PSU clients also, they are coming up with such production
02:19enhancement contract and we believe in this industry since we are more than three decades
02:24old, we have a great advantage to get this type of contracts even in future. Yes. Good
02:31morning, Mr. Shah. Hika this side. You know, since this is the first of the, you know,
02:35first kind of, you know, project enhancement operation order, could you kind of give us
02:39a margin picture because, you know, you do enjoy healthy margins in terms of your other
02:43segments. So, first margin profile of such orders since you expect more to come by and
02:48also the market opportunity in terms of size, if you have some estimate on that. So, margins
02:54would be again excellent in this production enhancement contract as well. So, as you rightly
03:00said, we are operating on good EBITDA margin, more than 40% in our other verticals. And
03:07from this particular vertical also, we are expecting a good amount of margin going further.
03:14And with regards to opportunity, since it is the first contract we have received, though
03:20we were eyeing on this type of opportunities for since last six, seven months. And we believe
03:28any further such type of contracts will definitely help us in improving not only our top line,
03:34but also our bottom line. Okay, Mr. Sharp, you suggested that the tenure while it is
03:4015 years, you're going to execute well within that tenure. What would that timeline be sub
03:4810 years or maybe 10 to 12 odd years? Is that how this is expected to play out? And also,
03:55if I can understand on this order alone, what would the incremental margin be like and therefore
04:01will it impact your blended margin, your overall margin? Yes. So, as I said, we are quite confident
04:09to execute this contract well within this timeline of 15 years. So, our expectation is to complete
04:17this contract in range of 10 years itself. And with regards to margin, it will definitely improve
04:25our overall margin. Mr. Sharp, so then we want to understand that in terms of quantification,
04:32you know, where will your blended margin stand at with respect, I mean, in accumulation to this
04:39order. So, by the end of FY25, first thing and if you expect that, you know, the timeline for
04:44execution of this will be 10 years, including this order, blended margin will stand at what percentage?
04:51See, blended margin exactly would be difficult to quantify, but as I said, it will definitely
04:57improve our overall blended margin. And since we are confident that we can complete this contract
05:04well within timeline and even in a time of 10 years, probably it will also add a great amount
05:11earlier in our top line going further. How quickly do you expect to start executing on this?
05:17Right. So, as per our internal estimate, it will take 9 to 10 months to start revenue out
05:24of this particular contract. So, revenue from this particular contract will start from next
05:30financial year. Mr. Shah, now in terms of your, you know, overall order book, you know, could you
05:37maybe give us a sense in terms of how you expect the entire order book to grow to, as well as the
05:42segments where you see, you know, more orders coming in, in terms of your bidding pipeline,
05:47how does it look like right now? Right. So, at the end of quarter one,
05:51our total order book was standing at around Rs. 1250 crores. And with this single order,
05:57it would be doubled, more than doubled. And we believe the growth is coming from
06:03all different verticals, including this new vertical of production enhancement contract.
06:09So, we are expecting a few good, more contracts coming and will be added to our order book in
06:15coming future, probably in next three to six months. We are expecting good amount of
06:20bidding pipeline conversion in our regular business verticals as well.
06:25Also, Mr. Shah, just with regard to your timelines again, you know,
06:30you've suggested you would start extraction from this new well, maybe 10 months from now.
06:36So, how does revenue therefore start to accrue? Will it be linear over the nine years thereafter?
06:43Or will you front-end some of it or will it be back-ended? How will it work in terms of top line?
06:51See, generally, it will start from low and it will have a bankout type of production. And so,
06:59it will be then beyond peak in immediately 1-2 years. And it will be there for a few years and
07:06over a period of time, it will start reducing. So, we believe a majority of revenue would be
07:13more or less front-loaded. And Mr. Shah, you know, considering the
07:18kind of order wins that you've secured and the kind of growth that you've seen, I want to
07:22understand that March 20, so FY24, you've roughly done revenue of 427 crore. So, from a longer term
07:29perspective, I want to understand that by the end of FY26 or 27, where will the revenues be at,
07:35what will be the number like and also the bottom line then?
07:40See, to quantify exact number would be difficult, but we are quite bullish on our growth numbers.
07:46And we believe we should grow at least more than 35% to 35% even in FY25. And similar amount of
07:55growth we are expecting in FY26 and 27 as well. So, with an opportunity of adding few more such
08:03production enhancement contracts in coming future, this growth percentage can even go for higher.
08:11Got it, Mr. Shah. You know, you said 25% growth in the next two years.
08:16From which segment will this be coming from? How will your margin profile look like? Will we see
08:20more focus on natural gas compression and natural gas dehydration, which are your higher margin
08:25segments? Or is there an optimal mix you're targeting?
08:30Yes, sir. Growth is coming from all different segments, including gas compression,
08:35dehydration, and drilling walkover. Along with this, we are also entering into different value
08:41added services, one of which is charter hiring of entire gas processing facility,
08:48which is again a unique concept introduced by us recently, where we are converting EPC
08:53opportunities on charter hiring basis. And that is also a great push, which we are expecting for
09:00that particular vertical as well. So, growth is expected from all different verticals, which we
09:06are into, and the additional vertical, which we are adding with this contract of production
09:11enhancement as well. So, all put together, we are expecting 35% type of growth.
09:18Okay. And Mr. Shah, so for this particular order win, is there any CAPEX that you're going to plan
09:23to do? And if yes, what will that amount be like? And secondly, how will you be funding that CAPEX?
09:31See, we are into this business for more than three decades, and we are providing almost all services,
09:37which are required to increase the production of this particular field. So, largely, we would be
09:44using our own equipments and our own services to increase the production out of this particular
09:50field. And if required, we'll do further CAPEX as well. But as of now, it is a little difficult
09:57to quantify because this contract would spread over almost 10 years.
10:03All right. Just overall picture, Mr. Shah, I want to get this absolutely right. So,
10:08you've got a top line of roughly 450 crore currently, you will likely go to closer to
10:131200 crore, maybe by FY27 at the growth clip that you're expecting roughly 30-35%.
10:21And you will do a 40% margin on that. Is that the right way to look at this?
10:25Yes, of course. We are going for it. Right. Okay. Very, very interesting.
10:313000 crore in terms of market cap and extremely robust in terms of growth.
10:36Thank you so much, Mr. Shah. It's been good chatting with you.