Buy Selan Exploration; target of Rs 312: Firstcall Research

Firstcall Research is bullish on Selan Exploration Technology and has recommended buy rating on the stock with a target of Rs 312 in its May 31, 2012 research report.

“Selan Exploration Technology Limited (SELAN) is a private sector listed company, incorporated in 1985, engaged in oil exploration and production since 1992. The Promoters and Management have extensive experience and domain knowledge in the field of Petroleum Exploration, Development and Production as well as in the field of Geophysical Data Acquisition, Processing and Interpretation. The first private sector companies to have obtained rights to develop three discovered oilfields situated in the state of Gujarat namely Bakrol, Indrora and Lohar, all with proven oil and gas reserves.”

“SELAN was subsequently awarded two more fields in Gujarat namely Ognaj Oilfield and Karjisan Gas field. All oil & gas blocks have a well laid out infrastructure. Hence these blocks are easily accessible and are in close proximity to the Government's crude gathering station as well as are in close proximity to a large industrial town. The various seismic and reserves assessment studies have established substantial of oil and gas reserves in these blocks. SELAN has a Development Plan for drilling of additional wells in these blocks in the next 3 to 5 years. The Plan is intended to be executed in a phased manner and would involve large capital expenditures, to be funded through a combination of external borrowings and internal accruals. The proposed external borrowings shall be drawn in various stages of completion of each phase. This approach offers a view to judiciously monitor the debt. With assured offtake of the entire oil and gas production from these blocks by the Government, as per the terms of the Production Sharing Contract (PSC) there is zero marketing risk associated with this project.”

“Selan Exploration Technology Ltd disclosed a phenomenon rise in standalone net profit for the quarter ended March 2011. During the quarter, the profit of the company surged 48.70% to Rs 114.80 million from Rs 77.20 million in the same quarter previous year. Net sales for the quarter rose 23.23% to Rs 243.50 million from Rs 197.60 million, when compared with the prior year period. It reported earnings of Rs 6.76 a share during the quarter, registering 48.70% increase over previous year period.”

“At the current market price of Rs 274, the stock is trading at 8.70 x FY13E and 7.54 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.31.50 and Rs.36.35 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 25% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 5.68 x for FY13E and 4.96 x for FY14E. Price to Book Value of the stock is expected to be at 1.78 x and 1.43 x respectively for FY12E and FY14E. We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs 312 for medium to long term investment,” says Firstcall Research report.   

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