ANALYSIS of Oil Country Tubular: Robust prospects

ANALYSIS OF

Oil Country Tubular: Robust prospects By Devdas Mogili

Oil Country Tubular Ltd. (OCTL) is a 23-year old Hyderabad based company established in 1985. OCTL's wide product range covers Drill Pipes, Heavy Weight Drill Pipes, Drill Collars, Production Tubings, Casings, Tool Joints, Couplings, Pup Joints, Subs and Cross Overs. The company’s plant is located at Narketpally in Nalgonda District of Andhra Pradesh. Dr. T. S. Sethuraman is the chairman while K. Suryanarayana is the Managing Director.

OCTL manufactures the complete range of drill pipes, production tubings and casing pipes with a capacity of 50,000 TPA. It has a tie-up with Baker Hughes Tubular Services of USA. The company is concentrating on Drill Pipes and has planned to double its installed capacity of Drill Pipes from 10,000 to 20,000 MTA through internal accruals.

Clientele: Since, OCTL’s business is linked with the oil exploration industry; its main clients are ONGC and OIL.

Exports: OCTL successfully executed its first export order for drill pipes worth $774,000 in January 1995 to a UK company but the Russian market is one of the largest customers of OCTL goods. The company has entered into a long-term arrangement with Grant Prideco of Switzerland for services and purchase of tubular goods manufactured by it. It also exports to Syria and Iran.

Order Book: The company’s order book position as on 31 March 2008 was Rs.154 cr. for execution in FY09 includes export orders worth Rs.122 cr.

New Products: OCTL has developed new products and is in the process of developing further products viz. Heavy Weight Drill Pipes, Drill Collars, Subs and other down-hole equipments.

Performance: For FY08, it posted a turnover of Rs.339.53 cr., which includes export turnover of Rs.254.14 cr. registering a growth of 28.92% as against Rs.264.76 cr. in FY07. Its profitability has zoomed from Rs.11.44 cr. in FY07 to Rs.28.91 cr. in FY08, a growth of over 153% recording an EPS of Rs.6.53.

Financial Highlights: (Rs. in lakh)
Particulars

Q1 FY08
FY08
Net Sales/Income
7793.59
33953.44
Other Income
41.31
179.87
Total Income
7834.90
34133.31
Total Expenditure
6523.90
25911.02
Interest
302.90
3755.25
Profit Before Tax
1008.10
4467.04
Tax Expenses
32.00
1575.78
Net Profit
976.10
2891.28
Paid up equity share cap.
FV: Rs.10 per share
4428.95
4428.95
Res Exc Rev Reserves
-
0.65
Basic/Diluted EPS (Rs)

Q1 FY09
6195.73
29.74
6225.47
4645.69
27.30
1552.48
461.31
1091.17
4428.95
-
2.46
2.20
6.53

Latest Results: Sales declined 20.50% to Rs.61.96 cr. in Q1FY09 as against Rs.77.94 cr. during Q1FY08. However, net profit rose 11.78% to Rs.10.91 cr. in Q1FY09 from Rs.9.76 cr. in Q1FY08. It registered a basic/diluted EPS of Rs.2.46 for the quarter. Going forward, the annualised EPS works out to Rs.9.84.

Financials: The company has an equity base of Rs.44.29 cr. and recorded a RoCE of 104.50% and RoNW of 48.22%. It has a low debt:equity ratio of 0.59.
Share Profile: The company’ shares with a face value of Rs.10 are listed and traded on the BSE under the B group. Its share price touched a 52-week high/low of Rs.123/Rs.50. Currently; the share is trading around Rs.59.65 with a market capitalisation of Rs.252 cr. It has a beta value of 0.7.

Dividends: With a view to conserve resources, to reduce debt and to meet the capital expenditure for additional/upgradation of equipments, the company has not paid any dividends.

Shareholding Pattern: The promoter holding in OCTL is of 33.10% while the balance 66.90% is held by non-corporate promoters and the Indian public.

Prospects: The demand for OCTL’s products has increased multifold due to substantial increase in oil exploration activities since crude oil prices are on the rise. Its products are well accepted in the international market on account of its quality and FY08 timely delivery.

The company recorded over 145% growth in exports at Rs.254.14 cr. during FY08 as against Rs.103.90 cr. during FY07. Profitability is also set to improve by increased sales of Drill Pipes both in the domestic and international markets and its foray into in the Middle East, Far East and Europe.

Conclusion: OCTL is one of the leading companies manufacturing a range of Oil Country Tubular Goods required by the Oil Drilling and Exploration industry.

At its current market price of Rs.59.65, the share price is discounts its FY08 earnings less than 9 times against the industry average P/E multiple of around 13. With crude oil prices shooting up, there will be more exploration activities, which will benefit the companies like OCTL. Considering its robust prospects, increased profitability margins and a reasonable P/E ratio, the share may be added to one’s portfolio on dips for decent appreciation in the medium-to-long-term.