The document provides an analysis and stock recommendation for Selan Exploration Technology. Key points:
- Q4 performance was impacted by lower crude oil prices but production volume increased 15% YoY and 11% QoQ.
- Production is expected to ramp up over the next two years, guided to reach around 500,000 barrels annually.
- Estimates for FY2016 and FY2017 are revised to factor in current crude oil prices and expected production volumes.
- The recommendation is maintained at "Buy" with a revised price target of Rs400, as production improvements are visible and crude oil prices appear to have stabilized.
The document provides an analysis and stock recommendation for Selan Exploration Technology. Key points:
- Q4 performance was impacted by lower crude oil prices but production volume increased 15% YoY and 11% QoQ.
- Production is expected to ramp up over the next two years, guided to reach around 500,000 barrels annually.
- Estimates for FY2016 and FY2017 are revised to factor in current crude oil prices and expected production volumes.
- The recommendation is maintained at "Buy" with a revised price target of Rs400, as production improvements are visible and crude oil prices appear to have stabilized.
The document provides an analysis and stock recommendation for Selan Exploration Technology. Key points:
- Q4 performance was impacted by lower crude oil prices but production volume increased 15% YoY and 11% QoQ.
- Production is expected to ramp up over the next two years, guided to reach around 500,000 barrels annually.
- Estimates for FY2016 and FY2017 are revised to factor in current crude oil prices and expected production volumes.
- The recommendation is maintained at "Buy" with a revised price target of Rs400, as production improvements are visible and crude oil prices appear to have stabilized.
The document provides an analysis and stock recommendation for Selan Exploration Technology. Key points:
- Q4 performance was impacted by lower crude oil prices but production volume increased 15% YoY and 11% QoQ.
- Production is expected to ramp up over the next two years, guided to reach around 500,000 barrels annually.
- Estimates for FY2016 and FY2017 are revised to factor in current crude oil prices and expected production volumes.
- The recommendation is maintained at "Buy" with a revised price target of Rs400, as production improvements are visible and crude oil prices appear to have stabilized.
Stock Update Weak crude dents Q4 but volume uptick evident; Buy with revised PT of Rs400 Key points
Company details Price target:
Rs400
Market cap:
Rs523 cr
52 week high/low: NSE volume: (no. of shares)
CMP: Rs319
Rs666/216 1.0 lakh
BSE code:
530075
NSE code:
SELAN
Sharekhan code:
SELAN
Free float: (no. of shares)
1.0 cr
Shareholding pattern
Q4 performance influenced by lower crude but volume improves: During,
Q4FY2015, the global crude oil prices corrected by roughly 50% YoY and 30% QoQ which largely affected the performance of Selan Exporation Technology (Selan). However, it is noteworthy that the production volume has improved in Q4FY2015 by 15% YoY and 11% QoQ to 49,700 barrels, which is one of the highest quarterly productions in the last three years. Production ramp-up outlook intact; material improvement likely from FY2016: During FY2015, the production volume was up by 6% YoY. Even in the early months of FY2016, the overall productions are higher by 30-35% YoY. During FY2015, the company had put five to six new wells on regular production and aims to put another three to five wells on regular production in the coming months. Hence, we expect material improvement in volume during FY2016 and FY2017. The management has retained its broader guidance of production volumes of around 5 lakh barrels annually in the next one to two years. Revising FY2016 estimates and introduce FY2017 estimates: We have fine-tuned our FY2016 earnings estimates to largely factor in the prevailing weak crude oil prices. We are factoring in the average realisation of $70-80 per barrel range over FY2016-17. We expect a production volume of 212,000 and 268,000 barrels in FY2016 and FY2017 respectively, and expect a substantial earnings improvement in FY2017, after margin growth in FY2016. Production improvement apparent; retain Buy with revised PT of Rs400: Selan's stock price mirrored crude oil prices in the recent past but now it seems to find equilibrium in the range of $60-75 per barrel in medium term. More importantly, the management retained its broader guidance of production volumes and the improvements are visible. Going forward we expect M&A activities in this space, given the recent development where the private equity firm, Carlyle Group, is backing up with $500 million to Magna Energy to acquire oil assets in India and Bangladesh. Hence, we retain our positive stance and reiterate our Buy recommendation with a revised price target of Rs400 (6.5x its FY2017 EBITDA).
Price chart
Results
Rs cr
Particulars
Price performance (%)
1m
3m
6m 12m
Absolute
8.9
23.5 -19.2 -50.5
Relative 8.9 to Sensex
24.4 -20.7 -56.1
Net sales Less: profit petroleum paid to GoI Total expenditure Operating profit Other income Interest Depreciation PBT Tax Adj PAT EPS Adj (Rs) Margins (%) OPM NPM Tax rate Volume sold (barrels) Realisation/bbl (Rs) Opt profit/ bbl (Rs)
Volume improved in this quarter and production ramp-up
outlook intact: After eight quarters of flattish production, the production volume improved in this quarter. It is noteworthy that the production volume has improved in Q4FY2015 by 15% YoY and 11% QoQ to 49,700 barrels, which is one of the highest quarterly productions in the last three years. During FY2015, the production volume was up by 6% YoY. Even in the early months of FY2016, the overall productions are higher by 3035% YoY. During FY2015, the company had put five to six new wells on regular production and aims to put another three to five wells on regular production in the coming months. Hence, we expect material improvement in volume during FY2016 and FY2017. The management has retained its broader guidance of production volumes of around 5 lakh barrels annually in the next one to two years (up from close to 1.7 lakh barrel bases in FY2015; a 3x jump in production volumes).
Valuations Particulars
FY13 FY14
FY15
FY16E FY17E
Net sales (Rs cr)
97.1 101.3
79.3
80.1
116.3
Operating profit (Rs cr)
75.4
57.0
62.6
90.9
81.5
Operating profit margin (%)
77.7
80.5
71.9
78.1
78.1
Net profit (Rs cr)
45.2
44.5
28.3
31.2
44.9
EPS (Rs)
27.5
27.2
17.3
19.0
27.4
Y-o-Y change (%)
PER (x)
0.1
-1.4
-36.5
10.3
43.8
12.2
12.1
19.0
17.2
12.0
2.3
2.1
1.9
1.8
1.6
Price/BV (x) EV/EBITDA (x)
5.6
5.0
7.4
7.3
5.2
Net cash/share
79.5
77.0
69.9
50.6
38.4
Div yield (%)
1.6
1.5
1.5
1.5
1.5
RoCE (%)
26.6
23.0
13.3
13.2
17.3
RoNW (%)
20.3
17.8
10.4
10.7
14.1
Revising FY2016 estimates to adjust weak crude prices
and introduce FY2017 estimates: We have fine-tuned our FY2016 earnings estimates to largely factor in the prevailing weak crude oil prices. We are factoring in the average realisation of $70-80 per barrel range over FY2016-17. We expect a production volume of 212,000 and 268,000 barrels in FY2016 and FY2017 and expect a substantial earnings improvement in FY2017, after margin growth in FY2016.
Q4FY2015 performance affected by lower crude: During
Q4FY2015, the global crude oil prices corrected by roughly 50% year on year (YoY) and 30% quarter on quarter (QoQ) which largely affected the performance of Selan. Despite a 48% year-on-year (Y-o-Y) decline in average realisation, the revenue of Selan declined by 39% YoY, due to a 15% Yo-Y improvement in volume. Consequently, its bottomline was affected negatively, as expected, given the prevailing weakness in crude oil prices.
Production improvement apparent; retain Buy with
revised PT of Rs400: Selans share price has corrected substantially in the past one year, following the trend of global crude oil prices. However, we believe the crude oil prices have now seems to find equilibrium in the range of $50-75 per barrel in medium term. More importantly, there are early signs of improvement in production volume (up by 15% YoY and 11% QoQ in Q4FY2015) and the management retained its broader guidance of production volumes. Going forward, we expect merger & acquisition (M&A) activities in this space, given the recent development where the private equity firm, Carlyle Group, is backing up with $500 million to Magna Energy to acquire oil assets in India and Bangladesh. Hence, we retain our positive stance and reiterate our Buy recommendation with a price target of Rs400 (6.5x its FY2017 EBITDA).
Quarterly production (bbl)
Production and profitability trend
Particulars Production (bbl) Crude price ($/bbl)
2009
2010
2011
2012
2013
2014
2015
2016E
2017E
282,745
238,140
190,210
168,041
165,444
163,481
174,410
212,037
268,032
83
113
109
103
74
61
70
Exchange (Rs/$)
45
49
54
60
61
62
62
Revenue (Rs cr)
100
71
71
93
97
101
79
80
116
EBITDA (Rs cr)
82
56
57
73
75
82
57
63
91
PAT (Rs cr)
47
29
32
45
45
45
28
31
45
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
Sharekhan
16
June 24, 2015
Home
Next
Disclaimer This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This document may contain confidential and/or privileged material and is not for any type of circulation and any review, retransmission, or any other use is strictly prohibited. This document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report. The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such. While we would endeavour to update the information herein on a reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as he deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of SHAREKHAN may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Either SHAREKHAN or its affiliates or its directors or employees/representatives/clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. The analyst certifies that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. Further, no part of the analysts compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document. Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; e-mail: [email protected] Contact: [email protected]
List of Key Financial Ratios: Formulas and Calculation Examples Defined for Different Types of Profitability Ratios and the Other Most Important Financial Ratios
