Self sufficiency in energy resources is
the key for the growth of any economy.Unfortunately ,at present , position of
our country in this matter is a reason for concern. Lack of framing and implementing policies, red tapism..etc are the major reason for our failure. Be it coal or oil our policies are
vague and can be interpreted in different ways. Only these type vague policies
will help to earn maximum bribery for the officials and hence majority of the
babu’s are not interested to frame a concrete policy which is clear and without
any doubt. Take the case of oil exploration ,where no major global players are
keen to explore in India when our government invites tenders for NELP .In the
past ,our govt announces one policy at the time of inviting tenders and change
that policy when a company identify oil after spending crores for exploration
activities. Even after finding oil ,it will take years to get permission to
erect pipes and other facilities to link the well with refinery .This is why still we
meets close to 80% of its oil needs and half of its natural gas requirement
through imports. There is lot of tax,environment
related issues which is quite natural but the time lag to sort out such matters makes
global giants desperate to bring their technology and efforts to a country like
India. Any govt with a vision should be aware about the importance of energy security and the importance
of the same to become a super power.In a recent interview ,our new minister emphasizes the importance of this factor and let us hope for the best going
forward.
Any positive effort in this direction will revive many sectors like
mining ,oil exploration,shipping,engineering..etc. About six months back we
have discussed some companies like Alphageo, Selan Oil Exploration etc from oil
exploration and allied sectors. This week let us look into one more company
related with this sector- United Drilling Tools. This company may be an unknown one to the investor fraternity and
I believe it even not discussed anywhere in message boards or discussion
forums.In one sense it is a niche company in the listed space from the oil
exploration related business.Company manufacturing many sophisticated equipments
used in oil exploration industry like Winches,Gas lift valves,mandrels,sliding
sleeves ..etc. These equipments are critical parts of oil exploration industry ,
sophisticated in nature and manufactured by very few companies in India.Earlier
company was supplying products mainly to ONGC and Oil India but with the
completion of its two units one each at Kandla and Noida ,company is planning
to ramp up exports.In another move ,promoters are merging privately owned
companies with the listed entity .Recently they merged P&K
Hitech Systems
P. Ltd and another one Macro Steel engineers is in progress.Post merger UDT’s
equity will be close to Rs.8 Crore.
Financials
2013-14 was the first full year of operations
post merger of P&K hitech systems . Company reported a Sales of Rs.78 Cr
and a net profit of Rs.4.72 Cr in this years .In the previous FY ( Prior to the
merger of P&K hitech systems ) it was Rs.36 Cr and Rs.87 lakhs. It is noted
that in this FY’s numbers there was an extra ordinary income of Rs.1.96 Cr .
Clarity on this point will be available only on receipt of latest balance sheet.The
next company to be merged (Macro Steel Engineers) seems small in size but as
per management claim they are holding
some patented niche technology in this
field.Post merger of this company, promoter’s stake will be close to 74% and
non promoter body corporates’ stake will increase from less than 1% to more
than 13 % .I believe ,this non promoter
corporate entities are linked with promoters itself and the share holding
pattern arranged in a manner to avoid the violation of public share holding
norms of listed entities.Other than this corporate entities ,general public will
hold less than 15% stake post merger.
Conclusion
Potential of oil exploration sector is
bright especially if the government is committed and the power to implement
policies . Company producing niche and import substitute products for this sector. Starting of export
from new units will minimise the uncertainties of local market and reduce the
volatility of earnings .In many other cases promoters merging their loss making
private companies with the listed ones but here the top line and bottom line
improved substantially post merger.Company’s results are volatile on a quarter
to quarter basis, profit margins are also highly volatile.Management clarified
that this is because of the tender based purchasing method by oil PSU’s and hence there is no rationale in analysing
company’s performance on a quarterly basis
. This volatility is expected to come down once there is improvement in
earnings from exports going forward. This is an unknown company with unknown
promoters which always increase the risk of investment,but at the same time it
is a niche one with good potential.Last year company reported an EPS of Rs.8.72
and currently trading with a P/E multiple of close to 3.Even if we reduce
the entire other income and re calculate the EPS ,P/E is only 6 at current
market price of Rs.30 .All together ,a high risk high profit kind opportunity
and suitable only for investors with high risk profile . Others can keep this stock in your watch
list and take decision after seeing the consistency in performance for the next
few years. Stock listed only in BSE with trade code .522014 and CMP is Rs.30
Link to company website HERE
Disc: I have vested interest in this stock
