Shiv-Vani Oil and Gas Exploration Services Ltd

CMP Rs454, Target Rs560, Upside 23.3%

Shiv-Vani Oil and Gas Exploration Services Ltd (SVOG) is well poised to gain on vast emerging opportunities in the E&P space in India. Pending minimum work program (MWP) commitments of NELP rounds, development capex and rising exploration activities in CBM fields, will translate into robust order inflows for SVOG. Its integrated nature of services will provide sustainability to margins. The stock is attractively valued at P/E of 5.7x FY12E EPS of Rs80.
 
Pending MWP of NELP rounds provide huge opportunities
Substantial portion of MWP committed during the NELP II- VI rounds of NELP is yet to be completed. Work related to ~5,500 line kms of 2-D seismic survey, ~5,000 sqkm of 3-D seismic survey and ~305 exploratory wells are pending. As per our workings, this entails an opportunity of ~US$1.7bn. Furthermore, for NELP VII and VIII rounds, work related to ~10,000 line kms of 2-D seismic survey, ~10,000 sqkms of 3-D seismic survey and 205 wells is yet to be initiated. This, as per our workings, should translate into an opportunity of ~US$1.4bn.

CBM opportunity… a shot in the arm
India, having the fourth largest proven coal reserves in the world, holds significant prospects for exploration and exploitation of coal bed methane (CBM). The total sedimentary area for CBM exploration in India is of the order of 26,000 sqkm. Out of this, exploration has been initiated in only 52% of the area. In other words, a large area remains to be explored. With India being a net importer of gas, we believe CBM activities would gain traction over the near term providing huge order inflow for integrated players like SVOG.

Valuations attractive at P/E of 5.7x FY12E earnings
As compared to a revenue CAGR of 28% during FY10-12E, we expect SVOG to report an earnings CAGR of 35% during the same period. Resultantly, RoE should improve from 18.9% in FY10 to 22.6% in FY12E. Strong earnings growth will also allow its debt/equity ratio to decline from 1.9x in FY10 to 1.5x in FY12E. Such robust earnings profile coupled with an attractive P/E of 5.7x FY12E makes SVOG a compelling investment opportunity. We recommend BUY with a target price of Rs560 (7x FY12E EPS of Rs80).

Valuation summary