Deep Industries Stock's Rerating In Sight Says Systematix As It Initiates Coverage With A 'Buy'
Systematix initiate coverage on Deep Industries with a Buy rating and a target price of Rs 693, as it believes the company is poised for a re-rating.
(Photo Source: Company' Official Website)
Deep Industries stands at an inflection point with a strong order book, favorable industry tailwind and aggressive expansion plans across its existing and new businesses to drive robust earnings growth for the company.
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Systematix Report
We initiate coverage on Deep Industries Ltd. with a Buy rating and a target price of Rs 693, as we believe the company is poised for a re-rating.
Deep Industries stands at an inflection point with a strong order book, favorable industry tailwind and aggressive expansion plans across its existing and new businesses to drive robust earnings growth for the company.
Factors expected to drive this growth are-
Regular increase in the number of rigs from 14 in FY24 to 20 in FY26E, with firm contracts for most of them (Ebitda margin 40%+),
huge traction at its integrated gas processing facilities, operating with three facilities (Bokaro started from May’25) and looking to add few more (with 50%+ Ebitda margin),
New Production Enhancement Contract from ONGC worth Rs 14 billion to lift earnings, and
Turnaround in its recently acquired company, Dolphin Offshore enterprises with the addition of two Anchor Handling Tug Supply and three Diving Support Vessels by the end of FY28E (potential to increase revenue contribution from 13% in FY25 to 35% in FY28E).
Deep Industries has a robust current order book of Rs 30 billion, equivalent to 5.2x FY25 revenue. In the last three years, the company incurred a capex of Rs 5.7 billion and it plans to spend ~Rs 13 billion over FY25-FY28E towards growth projects. Deep Industries is strategically placed with unique capabilities to achieve sustainable growth in the oil and gas services industry, with minimal competition.
Based on the recent contracts, upcoming assets and strong growth at Dolphin, we forecast a strong ~31% revenue CAGR over FY25-FY28 and Ebitda margin of 44%-45% by FY28E versus ~40% in FY25.
Consequently, we forecast Ebitda/PAT CAGR of 35%/28%, respectively, over FY25-FY28E. The stock trades at a P/E of 12.5x/10x/8.4x FY26E/FY27E/FY28E.
Key risks: Delay in execution, regulatory risk, significant drop in crude oil price may slow down exploration activities, currency exchange risk, etc.
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