Shiv Vani Oil & Gas Exploration Services - Stock Analysis

Abhishek Gumashta, Research Analyst of Sharekhan is of the view that Shiv Vani Oil & Gas Exploration Services has target of Rs 725.

CMP: 556

Gumashta told CNBC-TV18, "We are pretty positive on the prospects of Shiv Vani Oil. Our target price on the company is Rs 725 which is an upside of about 30% from the current levels. India predominantly been a very under explored nation. As things stand today, only 20% of our sedimentary basins are well explored. Rest of the 80% are either where exploration has been just initiated, is poorly explored or has not been explored at all. So there is a lot of potential in this industry."

He further added, "In the first six rounds of NELP-VII, about 162 blocks have been offered out of which 63 have been onshore. Initially there was more focus on the deep water and the shallow water segment but with the success of Cairn Energy and Cambay basin, the focus and investments in the onshore segment have also risen up significantly. In fact if you look at NELP-VII, almost 25 blocks were offered in the onshore segment and in NELP-VIII out of the 57 blocks offered 29 were in the onshore segment. So that’s very good for a company like Shiv Vani."

"If you also look out of 162 blocks offered, only 26 blocks are where the work has actually been started. So clearly there is a long way to go. The total committed investment in the industry so far through NELP-I to NELP-VII has been about USD 12 billion. You can add about USD 1.5 billion more from NELP-VIII. So there is a huge opportunity and we see a sustained phase of investment going forward for at atleast 5-10 years."

"It is the largest onshore oil and gas service provider in the private sector in India. It has a fleet size of 32 rigs, expanding to 40 by March, 2009. This company has done a very timely augmentation of its asset base. If you look at the assets which are being added this year out of the 15 assets, 13 are in the higher capacity segment. So that commands much higher day rates of almost USD 25,000 upwards. So that’s good for realisations. As far as the day rates are concerned we are quite positive on it. We believe that they would remain firm as the demand for rigs continues to grow."

"It has lined up a big capex of about Rs 650-700 crore for this year but the good thing is that most of the funds required have already been tied up. In fact bulk of the capex requirement would be funded through the warrants which would be issued to promoters. It has a very strong order book of Rs 5,300 crore. That imparts huge visibility. That’s more than 9 times its FY08 revenues. It is currently trading at 11.4 times FY10 earnings and we expect a CAGR of 49.8% for the next two-years in its bottomline.

Disclosure: Analyst doesn't hold the above stock but have recommended it to the clients.

Source: Moneycontrol website