Deep Industries Ltd Management Discussions

Indian Oil and Gas Industry

Healthy economic expansion, combined with dynamic population, urbanisation and industrialisation growth, will see Indias role in global oil markets rapidly increase towards 2030, with significant implications for its oil trade balances, climate ambitions and energy security goals. As energy transitions gather pace and Chinas economy shifts gear towards a less energy-intensive phase, India will assume the position as the worlds largest source of oil demand growth this decade. In 2023-2030 forecast period, India accounts for more than one-third of global oil demand growth.

According to IEA (India Energy Outlook 2023) Indias role in global oil markets is expected to expand substantially over the remainder of the decade, fuelled by strong growth in its economy, population and demographics. The global energy crisis has cast energy security as a key political priority for countries across the world – and it is a critical imperative for India given it is highly dependent on oil imports to meet its supply needs. The crisis has also boosted the momentum behind clean energy transitions.

According to WEA (World Energy Outlook 2023) there is a peak in global oil demand in all its scenarios this decade. The pace of demand growth diverges markedly across sectors, with road transport fuels set to enter decline first in response to the rapid uptake of electric vehicles, efficiency improvements and the continued rise of biofuels.

Currently in India the share of natural gas in energy basket is around 6%. The Government has set a target to raise the share of natural gas in energy mix to 15% in 2030. Several steps taken by the Government in this direction include expansion of National Gas Grid Pipeline, expansion of City Gas Distribution (CGD) network, setting up of Liquefied Natural Gas (LNG) Terminals, allocation of domestic gas to Compressed Natural Gas (Transport) / Piped Natural Gas (Domestic) CNG(T)/ PNG(D) in no cut category, allowing marketing and pricing freedom with a ceiling price to gas produced from high pressure/ high temperature areas, deep water & ultra-deep water and from coal seams, Sustainable Alternative Towards Affordable Transportation (SATAT) initiatives to promote Bio-CNG, etc.

Industry structure and developments

The Oil and Gas industry is typically split into three segments mainly - Upstream, Midstream and Downstream.

Upstream segment consists of exploration and production. For decades, the Indian Oil & Gas production used to be largely driven by state owned enterprises like ONGC & Oil India. However, private explorers like RIL, Vedanta & Essar have been catching up in a big way lately and have substantially increased their share in overall pie. FY24 in particular was a landmark year as RIL & BP started bringing in large gas production volumes through their KG Basin discoveries and is set to contribute 30% of total Indian gas production going forward. This emergence of private enterprise in Indian Oil & Gas is a blessing as it is giving in much needed efficiency and technology boost. This unique mix of state owned and private explorers has helped to create a stable environment in terms of energy security coupled with technological reforms. Having said that, globally the fortunes of upstream segment are largely tied up with demand volumes and realisation rates for the Oil & Gas output and India is no exception.

Midstream segment takes care of storage and transportation of oil and gas. This segment is largely made up of state owned giants like Indian Oil Corporation (IOCL) and Gas Authority of India Limited (GAIL) owning over half of the transportation network of the country. Volumes are very important for midstream segment as large transportation capacities requires these kind of huge volumes.

Downstream segment involves refining, processing and marketing of oil and gas and their derivatives. Downstream segment in India is highly fragmented and thus processing efficiencies plays a vital role here.

Deep Industries Limited with pool of service offerings, is catering all three segments with presence in Drilling, Gas gathering, Gas Processing, Gas transmission and distribution.

Deep Industries Limited is specialized in providing various Oil & Gas support services since more than 30 years. The Services portfolio includes Natural Gas Compression, Natural Gas Dehydration, Natural Gas Processing, Workover and Drilling Rigs Services, and Integrated Project Management Services. Deep is now ‘One Stop Solution Provider for every need of Oil and Gas field operations and services. Its comprehensive services portfolio is well supported by wide range of equipments used right from Exploration & Production to Mid Stream Services along with skilled manpower while maintaining safety and quality.

Deep started its journey in 90s by pioneering Gas Compression services on charter hire basis and has further expanded into various other services over a period of time. Deep has also pioneered the charter hiring of Natural Gas Dehydration and is the only Indian company providing Integrated Project Management Services.

Recently, as a part of ‘Value Added Offerings Deep has forayed into EPC of entire Gas Processing Facilities on charter hire basis and has become the first entity in the country to provide such one of its kind services.

Verticals of the company:

After a record FY23, FY 24 has been another milestone year as Deep earned its highest ever Revenues and Profits. The solid operational performance showcases the strength with which Deep is going ahead and growing. The industry continues to show healthy growth momentum and the same is reflected in the unexecuted order book of Rs. 1,210 Cr. which is an all-time high and is further growing. With addition of more and more value additive service offering for clients, strong liquidity levels, buoyant revenue visibility of 2.5-3 years and a robust bidding pipeline, we are aspired to achieve newer and finer milestones of business performance in the years to come.

Green Initiative

Your Companys all gas processing equipments are running on gas based engines which uses natural gas as fuel. Natural gas is a green form of gas which enables in less carbon emission.

Strength and Opportunities

– Offering a wide range of services in various sectors, catering to a diverse client base, and ensuring stability through different market fluctuations and demands.

– Leveraging the flexibility of fully mobile units, the company can expediently transport its resources to any corner of the country within a matter of months.

– The companys subsidiary is actively pursuing sustainable offshore opportunities, with promising prospects that are expected to unlock significant value in the foreseeable future.

– The companys liquidity and robust resource base position it favorably to meet expansion requirements seamlessly. The company has mirrored its financial moats from its core principles, maintaining a judicious balance between liquidity and debt on its books, consequently fostering a strong balance sheet.

– As the market demand for gas compression services continues to rise, the company is poised for an expansion, capitalizing on the increasing trend of outsourcing this specialized service.

– Deep Industries has supreme Expertise in providing Value added services for our clients which in turn improves their revenue generating ability as well as profitability at large and provides a diversified service mix for their product portfolio

Companys Services/ Segment-wise or products-wise performance

- Gas Compression Services:

Deep Industries Limited is the largest Natural Gas Compression service provider in India on chartered hire basis. The Company has executed various natural gas compression projects with various Public and Private sector Companies in India during last Three Decades. The Company executes compression contracts on turnkey basis, which includes supply of Equipment, Installation, Commissioning and Operation & Maintenance of gas engine driven compressor packages. The Company is able to provide the right solution to accommodate clients time-frame and budget. The Company has built its equipment fleet to offer a wide range of compression requirements. Deep International DMCC, subsidiary of the Company has acquired number of Gas Compression packages in USA to cater business opportunities in Middle East countries. The Company has started executing various projects in International Market.

- Gas Dehydration, Conditioning & Processing

Gas Dehydration is a process which ensures to remove water moisture and heavy hydrocarbons out of natural gas before putting the same in pipeline so to ensure safety of National Grid.

Deep Industries Limited is the pioneer in providing Gas Dehydration Systems on Build, Own and Operate basis in India on charter hire basis. The Company is also one of the largest Gas Dehydration Service providers in the country.

The process of Gas Dehydration is accomplished in two basic steps through which we sequentially lower the Water Dew Point and Hydrocarbon Dew Point to less than 0 DegC by removing water and heavier hydrocarbons from the source gas to meet PNGRB norms. The Company has efficiently commissioned Gas Dehydration Units of capacities upto 10 LSCMD per unit in a record time and designs packages to meet a wide range of applications with minimal changes required. The Company also maintains an intensive stock of spares to prevent any shutdowns as we understand the criticality of the process and its impact on clients.

- Drilling and Workover Services

DEEP commands a healthy market position in the area of providing the Drilling and Workover Rig services on charter hire basis in India. Since last 16 years, DEEP has served long term contracts for Drilling rig and Workover services to variety of clients including PSUs and Private E&P companies, and having the excellent track records in India. DEEP is having vision to expand the Rig business in overseas Market. DEEP is also approved Drilling Contractor in Kuwait Oil Company for providing the Rigs.

DEEP owns total 11 Nos. of Drilling and Workover Rig fleets ranging from 145 HP to 1000 HP, and having the tie-ups to provide the Rig up to 2000 HP. The Company has remarkably carried out and successfully completed various contracts for different operators and in diverse areas spreading from the Deserts of India, Ecosensitive Areas, and difficult Terrain of Mountain Range Areas.

DEEP is Capable to provide all Oilfield equipment pertaining to Drilling, Workover, Completion & Production on Charter, Rental & Dry Lease Hire basis.Our professional staff and fully operable fleet of drilling rigs and Workover rigs and technologies delivers for any operational need and helpful to quickly and safely deploy them at well site.

- Integrated Project management Services

Deep Industries Limited has adopted the Integrated Project Management (IPM) as a turnkey solution to drill and complete a well or a number of wells under single contract. We have capabilities to provide pool of niche services involving highly technical jobs and services under one roof improves coordination, Time & Cost Management. We are the first Indian company to offer integrated solutions. The Company has adopted various services of Oil & Gas exploration since 2016 considering the opportunity in the space and unconventional energy being the future.

We are one of the Indian incorporated Companies who has the unique combination of providing services to Upstream and midstream. Deeps experience, expertise and quality equipment helps to deliver results to the challenging projects and meet stringent client demands.

The Companys IPM services include:

– Surface Hole Drilling

– Air Drilling

– Cementing

– Geophysical Logging, wire line service

– Hydro Fracturing & Coiled tubing

– Well Completion Services-Workover operations to Production

- Charter Hiring of Entire Gas Processing Facility

The Company has started providing Design, Supply, Installation, Commissioning and regular Operation and Maintenance of Production system to receive, process and deliver Hydrocarbons at custody transfer point which are produced from the wells.

The development of Facility signifies the continuous efforts of the Company to offer various value added services to the clients as a key player in Oil and Gas Service Industry.

The idea and the project is one of its kind, the project Jaya is distinguished from all other projects executed by the Company, as under this project the Entire Surface Facility and produced fluid processing network from wellhead to the transportation point was delivered by the Company on Charter Hire basis.

This will create entire new opportunities in the Industry.

- Dolphin Offshore Enterprises (India) Limited, a step down subsidiary of Deep Industries Limited and a leading company in the country providing offshore services to Oil & Gas Industry. Dolphins key asset currently being refurbished, has excellent demand in the Industry and is already getting EOI. Dolphin is expected to contribute a significant portion to the groups topline in the coming financial years.

- Raas Equipment Private Limited, a subsidiary of Deep Industries Limited produces advanced Booster Compressor Packages with capacities of 22 kW and 37 kW that boast superior efficiency, minimal noise emissions, and meticulously engineered designs. These Booster compressors fully adhere to regulatory mandates and meet the stringent specifications outlined by PESO.The vision of our Prime Minister, Shri Narendra Modi and the roadmap from PNGRB has encouraged us to diversify into this sector and establish ourselves as a leading equipment manufacturer for oil and gas sector.

- Deep International DMCC, Based in Dubai, is a wholly based subsidiary of Deep Industries. This international arm of the company is providing similar Gas Processing Services across the Middle East, Africa, and Asia. Deep International DMCC is also engaged in some level of trading of customized gas processing equipments.

- Deep Onshore Drilling Service Private Limited, a subsidiary company of Deep Industries, entered into a JV with Euro Gas Systems to enhance the companys technical expertise and know how to further support gas field services.

- Deep Onshore Services Private Limited (‘DOSPL), a Wholly Owned Subsidiary (WOS) of Deep Industries Limited.DOSPL acquired Dolphin Offshore Enterprises (India) Limited. It is a strategic acquisition expanding business footprint into offshore services segment.

- Breitling Drilling Private Limited, a Subsidiary of Deep Industries Limited was acquired in July 2023 and the Company is currently non operational. We are exploring opportunities to bid higher capacity Rigs tenders in JV with other qualified companies.

- SAAR International FZ-LLC, Based in Ras Al Khaimah Economic Zone, Dubai (UAE) is a wholly owned subsidiary of Deep Industries Limited, incorporated in the month of March 2024. The Company is incorporated to carry out various business activities in Oil & Gas Industry.

Outlook

Deep Industries Limited is in business of Oil and Gas field services and is specialized in providing Gas Compression Services, Drilling and Workover Services, Gas Dehydration, and also having expertise in Integrated Project management Services. In addition, the Company has been expanding its business through organic routes like entering into new services markets as well as inorganic routes like strategic tie-ups and acquisitions. The Company is also in the process of spreading its wings through venturing in to offshore services.

The Company has been building up and growing steadily since, primarily through:

? Conveniently & strategically located to Service Oil & Gas markets in India and globally ? Owns Fuel Efficient, latest Equipments to cater the need of Oil & Gas Industry ? Recruiting highly skilled technical staff ? Providing services at high quality of standards with peak performance

The Company has grown up to be a "One Stop Solution" provider for every need in Oil and Gas field operations by catering various equipment and services under rental and chartered-hire basis.

Risks and Concerns

Risks and uncertainties are an inherent part of every business, and yet it is important to identify the risks and take proactive steps to measure, minimize and mitigate them. The Company sees concerns in relation to the Scarcity of skilled personnel in market, Procurement Risk as not being able to procure rightly configured equipments in a timely manner and dependency on few clients.

The Company understands these risks can adversely impact fruition of both short-term operational and long-term strategic goals. Hence Risk management process is closely aligned with Companys business planning process and control function whereby the Company identifies and evaluates risks as early as possible, applies strategies and tools to mitigate those risks and attempts to limit its overall impact on the business by adopting suitable measures and continuously revaluating those measures with a prime focus to mitigate those risks that pose a threat to its sustainable growth.

Internal control systems and their adequacy

The Company has put in a place an adequate and effective Internal Control Mechanism to ensure efficient conduct of its operations, security of assets, prevention and detection of frauds/errors, preserving accuracy and completeness of the accounting and business records and timely preparation of financial statements and related information. These internal control systems are then further supplemented by Internal Audit carried out by the Internal Auditor of the Company and periodical review by the management. The Company has put in place Proper and adequate controls, which are reviewed at regular intervals to ensure that the business decisions and transactions are properly authorized, correctly and timely reported and the assets are safeguarded from loss , damage and misuse.

In addition to above, the Company has formulated a Vigil Mechanism and Whistle Blower Policy for its Directors and employees of the Company for reporting genuine concern about unethical practices and suspected mal-practices.

Revenue from Operations

Further, the Companys Other Income increased from Rs. 2,041.22 Lakhs to Rs. 2,596.07 lakhs whereby Other Expenses has increased from Rs. 2,278.05 Lakhs to Rs. 2,337.60 lakhs.

Employees Remuneration & Benefits has marginally increased from Rs. 2,598.15 Lakhs to Rs. 3,959.60 lakhs which shows marginal increase of 52.40 % in actual terms and this also includes Directors Remuneration.

Interest & Financial Cost has increased from Rs. 438.38 Lakhs to Rs. 681.27 lakhs as compared to previous year. The Companys Operating Expenses have rose from Rs. 13,693.64 Lakhs to Rs. 16,868.53 lakhs which commensurate with the increase in Revenue from Operations.

Material developments in Human Resources / Industrial Relations

The Company believes that the quality of the employees is the key to its success and is committed to equip them with skills. The Company provides to the employees a fair and equitable work environment and support from their peers with a view to develop their capabilities leaving them with the freedom to act and to take responsibilities for the task assigned. The Company has strongly embedded core values and all employees are trained and encouraged to use these values in their daily operations and the bases for making decisions. The Companys management has always carried out systematic appraisal of performance and imparted training at periodic intervals. The Company has always recognized talent and has judiciously followed the principle of rewarding performance. This has helped to ensure all employees are aligned and focused on key objectives and key performance indicators critical for the Companys performance. In order to meet steady flow of talent, Company has appointed experienced professionals in Technical as well as Commercial Departments. Apart from that, as a strategic policy, every year, Company hires new pool of talent from reputed technical / petroleum institutes through campus selection process. In adding up, the Company is committed to nurturing, enhancing and retaining top talent through superior Learning and Organizational Management. The Industrial relation of the Company with various suppliers, customers, financial lenders and employees is cordial. Total employees/workers on the payroll of the Company as on March 31, 2024 are 878.

Health, Safety & Environment

Being a service provider to high risk industry, safety of employees is utmost priority of Company. While providing services, Company ensures compliance to all Rules and Regulations regarding Health, Safety and Environment protection. Imparting essential health and safety training such as MVT, Firefighting etc is being followed on regular basis.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios and any change in Return on Net Worth, along with detailed explanations thereof.

*Net worth is Adjusted for Goodwill and Capital Work In Progress

Disclosure of Accounting Treatment

Standard Accounting procedure has been followed.

Cautionary Statement

Statements made in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations and predictions may be ‘forward looking statements within the meaning of applicable laws and regulations. The Companys actual results, achievements may differ materially from those projected in any such forward looking Statements. The Company assumes no responsibility to publicly amend or revive any forward looking statements on the basis of subsequent developments, information or events.