Jindal Drilling & Industries Limited (JDIL), a part of the D.P. Jindal Group, is a leading company in offshore drilling in India’s Oil & Gas sector for over 30 years. It provides horizontal and directional drilling services, using positive pulse telemetry based MWD systems and steerable downhole mud motors.
JDIL, in Nov 2021, acquired an offshore jack-up rig ‘Jindal Supreme’, from Venus Drilling Pte. Ltd for $ 16.75 mn. The acquisition would be beneficial as the hire charges associated with the rig will now not be borne by the Company. Acquisition of rigs against loans to the JV reflects better capital allocation management. Similar acquisition from its group company in near future would be EPS accretive and makes a case for re-rating of the stock. The Company is focused on improving its cost efficiency and operating margins. The acquisition of two of their rigs in the last couple of years is an initiative in that direction.
JDIL reported a topline of Rs 115.8cr, up 1.7%/15.5% YoY/QoQ. The Company would clock similar quarterly revenue in Q4 as all the 5 rigs are operational. Its EBITDA stood at Rs. 29 cr registering a growth of 70.9% on sequential basis. EBITDA margin improved as operating leverage kicked in; it stood at 25.1% as against 8.6% in Q3FY21 (while it was 16.9% in Q2FY22). The Company reported adjusted PAT of Rs 23.8cr as against Rs 7.5 cr in Q2FY22 (reported net loss of Rs 0.3 cr in Q3 last year).
Going forward, the management is confident of a 20-25 % hike in rig rates which will kick in once contracts are renewed in FY23. Timely contract renewal of the jack up rigs with ONGC and likely no disruption in operation due to the pandemic can help enhance the revenue and expand profit margins over the next year. The Company has a strong balance sheet with a D/E ratio of 0.28x and further acquisitions are also possible.
On the back of strong demand for oil & natural gas post covid and its increase in prices; the charter rates under renewal contracts would see a sharp jump thereby improving its top-line and bottom-line. The Company is also looking for international business expansions and exploring new contracts for jack-up rigs, directional drilling and mud logging units outside India.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 14 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.