The newly secured ONGC gas dehydration business drove up the profitability and the topline growth of the company, said Paras Savla, CMD of Deep Industries. FY16 saw a revenue growth of 70 percent and Savla expects the trend to continue for both revenue and profit margins in FY17. With the current orderbook being around Rs 875 crore (80 percent from ONGC alone), the company awaits the results of more bids worth Rs 600 crore. The promoters of the company have plans to increase the stake to about 75 percent, he added. Below is the verbatim transcript of Paras Savla’s interview with CNBC-TV18's Reema Tendulkar.
Q: A very good quarter for you. Your topline has gone up by 142 percent year-on-year (Y-o-Y). Your profits are up by 184 percent. You have seen some improvement in your margins. Could you tell us was there any element of one off in the quarterly numbers and what is the sustainable revenue and profit growth going forward?
A: The main driving factor of the profitability and the topline going was the new gas dehydration business that we secured. That has brought immense growth in the company. With just a single contract last year our company got doubled. We currently have the order books on that account from ONGC. The margins as I said has been relatively quite good. We have been almost at a profit after tax (PAT) of almost around 24.07 percent.
Q: What is the current order book?
A: The current order book we have is around Rs 875 crore.
Q: Any new contracts that you are likely to win?
A: We have bidded quite a few projects. We are expecting the outcome of those projects to come in next month or so. So, with those expectations it is expected we get more orders on our hand.
Q: Could you give us how many contracts have you bid for, what is the total size of the contracts that you won. Just to get a sense, the future visibility of the company?
A: If you see the last year standalone the orders that we received from ONGC were for two gas dehydration projects and the drilling rigs. So, all these orders combined two drilling rigs and the dehydration units were closely around Rs 650 crore odd. So, we had to get some of these projects - I am unable to guide the numbers going forward but the numbers would also be in similar lines.
Q: The promoters have been hiking stake in the company. My colleague has just highlighted how in the last three years you have seen the promoter holding go up from nearly 60 percent up to over 70 percent as of the March 2016 shareholding. Do the promoters want to increase the stake up to 75 percent, do they have plans to keep the company listed at all, explain what the promoters plan is because they have been consistently increasing their stake?
A: We have been increasing our stake. It is very hard to comment at this point what we would be doing going forward but yes, we do have plans to increase our stake because we are very confident of the business we have.
Q: But increase your stake only up to 75 percent? You can't go beyond that?
A: We can't go beyond, yes.
Q: So, you will go up to 75 percent?
A: Yes.
Q: Will this revenue run rate that you have enjoyed in FY16 be maintained because you have seen your revenues go up by nearly 70 percent last year?
A: Looking at the order book that we have it is quite possible that the growth would be on similar lines that we expect even this year to go ahead.
Q: What about margins, what would be the sustainable margins?
A: Margins would be in the similar lines because it is services business, we have a straight line revenue and expenses coming in. So, we think the margins and percent of profits would be on similar lines of the topline that we get for the current financial year.
Q: You told us your order book is Rs 875 crore. What percent of that comes in from ONGC?
A: Around 80 percent of that comes from ONGC.
Q: And is ONGC is a long term contract, is there risk of the contract coming to an end. Because you have got clearly a lot of client concentration risk?
A: The biggest contract that we have received last year were the 10 years, three years and five years. So, the contract that we have are long term contract. So, we have very few contracts which are on getting expired in this financial year. But they are very few numbers. The largest content is of gas dehydration business and drilling rigs.
Q: Even the new contracts that you bid for right now, are they from ONGC or they are from other operators?
A: They are from ONGC and other oil and gas companies as well. They are from public sector undertaking (PSU) as well as private oil and gas players.
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