Deep Industries Ltd (DEEPINDS) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, we are connected for the Deep Industries Limited Q2 FY '27 earnings conference call. Please stay connected. The conference will begin shortly. A reminder to all the participants that you are connected for Deep Industries Limited earnings conference call. Please stay connected. The conference will begin shortly. Thank you.
Moderator: Ladies and gentlemen, good day and welcome to the Deep Industries Limited Q2 FY '27 earnings conference call hosted by Arihant Capital Markets Limited. As a reminder, all participants' lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Khushi Solanki from Arihant Capital Markets Limited. Thank you and over to you, ma'am.
Khushi Solanki (Arihant Capital Markets Limited): Thank you. Good morning everyone. On behalf of Arihant Capital, I welcome you all to the earnings call of Deep Industries Limited quarter two FY '27 conference call. From the management side today, we have Mr. Paras Savla, Chairman and Managing Director, Mr. Rohan Shah, Director Finance and Chief Financial Officer. We welcome the management of Deep Industries Limited on this call. Now, without any further delay, I invite Mr. Paras Savla to give the opening remarks, following which we will open the floor for Q&A round. Over to you, sir.
Paras Savla (Deep Industries Ltd): Good morning, everyone. It gives me immense pleasure to speak to you all today as we discuss our performance for the second quarter and first half of FY '27. We sincerely appreciate your continued interest and confidence in Deep Industries Limited. I trust you had a chance to review our financial results, press release, and investor presentation, which have been made available on the company website and the stock exchanges. I am joined today by our Director Finance and CFO, Mr. Rohan Shah, who will share a detailed financial overview for the second quarter and half year ended on 30th September 2026 after my address. Let me briefly take you through the macroeconomic environment and evolving dynamics of the energy sector. If we look at the global energy situation, I think it is fair to say that uncertainty is likely to stay with us for some time. Despite some efforts towards a diplomatic resolution, there is still no clear visibility on when normalcy will return to global energy supply routes and markets. While global supply chains are gradually finding way to adapt to the situation,
Paras Savla (Deep Industries Ltd): and supply arrangements are helping keep energy flowing. But this is coming at a higher cost. Shipping, logistics and insurance costs continue to remain elevated, and the risks around supply disruptions are far from over. So while the world is adjusting to the new reality, it is doing so at a higher cost. For our country, given our dependence on imported energy, this means we are likely to continue facing pressure from elevated crude prices, supply uncertainties, and volatility in the energy market over the coming months. So while the situation may improve gradually, we believe it would be prudent to prepare for the challenging operating environment for some time. This also makes the case for strengthening India's domestic energy production and energy security even more important. On the demand side, IEA expects some softness in the near term, but the longer-term outlook, particularly for Asia and emerging economies like India, remain encouraging. I think the larger point here is that energy security is becoming a much bigger priority than simply sourcing energy at the lowest possible cost. Countries are increasingly looking at reliable, diversified and domestic sources of energy. And we believe this shift will create important opportunities for India's energy sector over the coming years. The government strategy has fundamentally pivoted from a revenue sharing mindset to an aggressive exploration first agenda. The urgency is evident. Domestic crude production fell to 28 MMT in 2025-26, while import dependence touched at a record of 88.7%. The cost of that dependence is now visible. India's crude import bill rose from 48.4% year-on-year to $74.8 billion in April to August, driven by higher prices on broadly unchanged volumes. The policy response has moved from the intent on execution. On 31st July, the Union Cabinet chaired by honorable Prime Minister, Shri Narendra Modi ji, approved Samudra Manthan the national offshore exploration scheme with an outlay of Rs 84,084 crore through FY 2030 to 31. The policy shift is now visible on how blocks are awarded. The DGH announced on 26th October that companies can file expression of interest for deepwater and ultra-deepwater blocks every month under a special OALP round. So, bidders no longer have to wait for an annual round. Bidders will now compete on the work program they commit to, which replaces revenue share bids. Bidding for onshore and shallow water blocks under OALP 10 and 11 closed on 19th June 2026. Awards of onshore and shallow water blocks should translate into exploration and work programs over the coming quarters. Upstream discovery is only half the battle. Bringing molecule to the market is what yields cash flows. Under the unified pipeline tariff, a manufacturing unit in a remote district pays essentially the same transportation tariff as one bed side beside and import terminal. India's operational gas pipeline network has crossed 25,000 km with over 10,000 km more under construction and the government launched National PNG drive 3.0 on 1st October, running through March 2027 to deepen consumption. Guided by the vision of Aatmanirbhar Bharat, India is positioning itself to attract global capital into E&P sector. As a leader covering 75 70% of the post-exploration services value chain, spanning gas compression, dehydration, gas processing facilities, workover and drilling rig services, integrated project management, production enhancement contracts, and offshore support, Deep Industries is directly aligned with these structural tailwinds. Higher crude prices, a nation's mandate to reverse production decline and a fully funded offshore exploration mission together create a multi-year demand runway for our services. I'll just run through the various verticals of our sector that we do. On the gas processing side is where Deep has mostly clearly redefined and business models. Operators traditionally build surface production facilities as a capital-intensive EPC projects. Deep offers them a charter higher service. We design, supply, install, commission, operate, and maintain the complete system, taking raw hydrocarbons from the wellhead and delivering on-spec gas to the cust-
Paras Savla (Deep Industries Ltd): transfer point with no upfront capital from the operator. Starting from Vedantas Jaya side we have seen since added several ONGC facilities. As the national grid expands and domestic gas becomes a strategic priority demand for fast capital light gas monetization is rising, which is exactly what the model delivers. Gas compression where Deep began in 1996 remains the backbone of our business. Our fleet of over 80 compressors the largest in India is matched to each field's volume and pressure profile. Roughly 30% of India's compression requirement is outsourced and Deep executes close to 85% of it. The government governments 23,731 crore Gobar-Dhan scheme, which targets a nearly 10-fold rise in compressed biogas output and mandates CBG blending of 3% this year, rising to 5% from FY28 to 29 opens a new avenue for us. Every CBG plant needs purification and compression before grid injection or fuel dispensing and our chartered hire model suits producers seeking reliable operations without heavy upfront capital. We are actively evaluating opportunities in this segment. So, before gas enters the national grid it must be stripped off moisture and heavy hydrocarbons to protect the pipeline integrity and safety. Gas dehydration is essential across processing plants, pipeline and storage facilities. Deep was among the first companies in India to qualify for gas dehydration services. As the grid expands, the need of reliable grid quality gas grows with it. Through IPM we take complete responsibility for drilling and completing a well under a single contract. Bringing these specialized services under one roof gives clients tighter coordination, better cost control and faster timelines. Deep is one of the first Indian company to offer this integrated model and we are Indian incorporated company serving both upstream and midstreams. Deep holds a strong position in chartered hire drilling and workover rig services in India. Company is currently managing fleet of 20 onshore rigs comprising of 14 workover and 6 drilling rigs. These rigs have operation across deserts, eco-sensitive zones and mountainous terrain. As of today, the fleet is fully utilized. On the production enhancement services: Production enhancement is where our capabilities come together to deliver measurable output. Under a 15-year 1402 crore contract with ONGC, Deep is responsible for raising hydrocarbon production and extending the life of mature field. We do this through advanced techniques, specialized equipment and disciplined field operations. We took over the field in April 2025 and began with the baseline production. The Morifi incident delayed our incremental production program by 5 to 6 months. We have now deployed our rig, resumed workover jobs and will soon start drilling the new wells. We expect incremental production to begin contributing from quarter Q3 FY27, supported by planned CapEx of about 150 crore in next 12 months. On the offshore services: After more than three decades onshore decades also Deep expanded offshore by acquiring Dolphin Offshore through NCLT process. We gained control in January 2023. Dolphin is now a step-down subsidiary. We are reviving the business in a phased manner and our DP2 barge, Prabha is already in operation. Our expansion is disciplined and contract backed. We commit CapEx only once a firm deployment contract is in hand. We are actively evaluating both domestic and international tenders. On the new initiatives: We are positioning Deep for energy transition by building on what we already do well. On green hydrogen in FY26, we signed an MOU to bid for and execute green hydrogen projects and we are actively evaluating opportunities. On geothermal our onshore drilling expertise transfers directly. Rig operation, drill string management, bit selection, and circulation systems are fundamentally the same in geothermal wells. The main difference are higher temperatures and harder, more abrasive rock. Hydrogen production: Hydrogen production, purification, and handling rely on unit operations that are standard in gas processing. That gives us a strong technical foundation to scale in this space. We will continue to look for adjacent segments where our core competencies gives us a natural edge. On the business momentum:
Paras Savla (Deep Industries Ltd): During the quarter and half-year ended 30th September 2026, asset utilization stayed healthy across our core services line, onshore drilling, workover services, gas processing, and production enhancement. This was despite a volatile external environment. Demand for integrated oilfield services remained well supported by the policy push to expand exploration acreage, strengthen gas infrastructure, and raise domestic production. The approval of Samudra Manthan and the sharp rise in India's import bill for this year make the push stronger, not weaker. With the first half behind us, our priorities for H2 FY '27 are clearly defined. On the fleet performance, maximize utilization and maintain our safety record across the drilling and workover fleets. On the production enhancement, grow our presence in EOR and unconventional segments by securing new production enhancement contracts. Charter hire growth, expand charter hire deployment of gas processing plant modules and accommodation units as operators look to monetize domestic gas faster. Inorganic growth, pursue selective, value-accretive M&A that broadens our services capabilities. On the business outlook of FY '27 and '28, the oil and gas industry in India is at an inflection point. It is moving decisively towards reduced dependence on overseas supply. The sector is transitioning from a period of crisis management to one of structural rebalancing. The closure of Strait of Hormuz and the sharp rise in crude oil prices have caused significant supply-side disruptions. In response to the, Government of India has fast-tracked its resolve to reduce import dependence. Guided by our honorable Prime Minister, Shri Narendra Modi ji, vision of Atmanirbhar Bharat, the country is actively pursuing investment in its exploration and production sector. This forms part of a broader USD 500 billion opportunity in energy infrastructure by 2030. This intent is backed by a concrete policy action. The government has shifted its focus from revenue sharing to an exploration-first approach. On the offshore side, the global scenario is opening up substantial opportunities for offshore oil and gas support services. Through Dolphin, we are confident of securing a few more long-term charter hire contracts in the coming period. Onshore demand for drilling rigs remains very strong. Under our integrated project management, we are exploring opportunities to enter the higher capacity drilling rig segment, which we believe can add a further leg to our growth. Finally, on our order book and pipeline, Deep Industries Limited is India's only integrated onshore and offshore oil and gas services provider with more than 30 years in the business. That positions us strongly to benefit from the current industry outlook. We maintain a constantly revolving order book of over INR 3,000 crores, supported by a healthy bidding pipeline. Taken together, we believe the outlook for the business is very promising. Bidding pipeline for '27, '28, the bidding pipeline continues to be in the range of INR 700 to 800 crores. Now on the guidance. Based on existing order book of approx. INR 3,089 crores, operating revenue is expected to grow in the range of 30% to 35% in FY '27. With existing order book and bidding pipeline, operating revenue is expected to grow by 30% to 35% in FY '28 over FY '27. PAT to be expected in the ranges of around INR 350 to INR 370 crore in FY '27 and INR 470 to INR 500 crore in FY '28. As we head in the second half of the year, two principles will continue to anchor everything we do: sound governance and a zero-compromise approach to safety. In a period of heightened uncertainty, these are not just obligations, they are foundation of our trust our stakeholders place in us. We want to take a moment to thank our people in the field and at our offices. Thank you for delivering consistently in a demanding environment. To our clients and partners, thank you for working alongside us as a genuine collaborator. And to our shareholders, thank you for your continued belief in Deep Industries and its long-term journey. With this, I now invite Mr. Rohan Shah to provide a detailed overview of the financial performance for quarter 2, H1 FY '27. Following his remarks, we will be happy to address any questions you may have. Thank you.
Rohan Shah (Deep Industries Ltd): Thank you, Paras bhai. Investor friends, thank you for joining the call today. It gives me immense pleasure to inform that we have reported highest growth across all key financial parameters for our reporting period ended on 30th September 2026. At the first instance, due to nature of our business, it would be prudent for all analysts and investors to compare our performance on year-on-year basis. Coming to key financial numbers of second quarter and half year ended on September 30th, 2026, consolidated revenue from operation for the quarter ended September 26 was ₹295.43 crore and for the half year ended September 26 was ₹574.34 crore, which translates into an impressive growth of 33.7% and 36.6% respectively on year-on-year basis. While our last four-year revenue CAGR was around 37%, our H1 FY '27 total income of ₹616 crore is higher than our full year FY '25 total income of ₹608 crore, which demonstrates our accelerated growth in the half year gone by. Consolidated EBITDA for the second quarter of FY '27 stood at ₹124 crore and for the half year stood at ₹255.83 crore with EBITDA margin of 39.6% and 41.6% respectively. This indicates increase of 10% and 23% respectively on year-on-year basis. Consolidated net profit for the second quarter of the current financial year was ₹81.22 crore and for the half year stands at ₹170.37 crore with PAT margin of 26% and 28% respectively. This indicates increase of 14% and 28% respectively on year-on-year basis. Consolidated cash profit for the quarter stood at ₹106.53 crore and for the half year stood at ₹219.93 crore with cash PAT margin of 34% and 36% respectively. Our free cash flow from operations increased by 35% to ₹155 crore in H1 FY '27. This demonstrates full transmission of our revenue growth of 35% into cash generation. Our ROCE has improved by 230 bps from 19.3 to 21.6 in H1 FY '27. As on date, our order book stood at ₹3,089 crore which provides strong revenue visibility for FY '27 and FY '28, as guided by Paras bhai. About EBITDA margins, we would like to clarify that given the project-based nature of our business, because of operational cadence of transitioning equipment between completed projects and newly awarded projects, some quarters can see 300 to 400 bps of EBITDA margin variance. However, our EBITDA margin on yearly basis would expected to be in range of 42 to 43% as per our guidance. For this reason, we encourage the investor and analyst community to evaluate our EBITDA margins and overall operational performance on year-on-year basis rather than quarterly basis, as annual comparisons provide a truer reflection of underlying operational strength and sustainable margins. As we enter into the next phase of growth, our capital allocation framework remains disciplined. We are focused on turning scale into strong free cash flows, expanding margins and maximizing return on deployed capital. With a clear operational roadmap and resilient balance sheet, our team is committed to delivering compounding value to our shareholders. With this, I now open the forum for question and answer.
Moderator: Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Sudhir Bheda from Bheda Family Office. Please go ahead.
Sudhir Bheda (Bheda Family Office): Hi, good morning. Am I audible?
Rohan Shah (Deep Industries Ltd): Yeah, good morning. Yes, sir.
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