Jindal Drilling & Industries Limited (JDIL), a subsidiary of the D.P. Jindal Group's Drilling Division, is a major player in India's oil and gas drilling industry. The company's shares have risen from Rs 92.70 on March 22, 2021 to Rs 232.65 on March 21, 2022, at 9:25 IST, showing a multibagger return of 150.97 percent in a year. On the NSE, the stock has increased by 66.83 percent on a year-to-date (YTD) basis. The stock has returned 68.89 percent in the previous six months and has risen 27.27 percent in the last month. HDFC Securities, a brokerage company, anticipates potential upside in the stock and has given it a buy call rating with a target price of Rs 283 in the next two quarters.
The brokerage has said "Jindal Drilling & Industries Ltd reported a decent topline growth of Rs 115.8cr, up 1.7%/15.5% YoY/QoQ. The company would clock revenue at a similar run rate in Q4FY22 as previous couple of quarters as all the 5 rigs are operational. Its EBITDA stood at Rs. 29cr registering a growth of 70.9% on sequential basis. EBITDA margin improved as operating leverage kicked in; it stood at 25.1% as against 8.6% in Q3FY21 (while it was 16.9% in Q2FY22)."
"Acquisition of Offshore Jack-up rig 'Jindal Supreme' from Venus Drilling Pte Ltd would improve its operational performance as hire charges relating to this rig would now not form a part of JDIL's operating expenses. Strong operational performance coupled with profits from JVs lifted its adjusted PAT. The company reported adjusted PAT of Rs 34.4cr as against Rs 3.6cr in Q2FY22 (reported net loss of Rs 16.5cr in Q3 last year)," says HDFC Securities.
Buy for a target price of Rs 283
The brokerage has claimed "JDIL, in Nov 2021, acquired an Offshore Jack-up rig 'Jindal Supreme', from Venus Drilling Pte. Ltd for USD 16.75 million. Acquisition of rig would be beneficial as the hire charges associated with the rig will now not be borne by the company. Acquisition of rigs against loans to the JV reflects better capital allocation management. Similar acquisition from its group company in near future would be EPS accretive and makes a case for re-rating of the stock. The company is focused on improving its cost efficiency and operating margins. The acquisition of two of their rigs in the last couple of years is an initiative in that direction. On the back of strong demand of oil & natural gas and its increase in prices; the charter rates under renewal contracts would see a sharp jump thereby improving its topline and bottomline."
"The company is also looking for international business expansions and exploring new contracts for jack-up rigs, directional Drilling and Mud logging units outside India. Going forward, the management is confident of a 20-25% hikes in rig rates which will kick in once three contracts are renewed in FY23. Timely contract renewal of the Jack up rigs with ONGC and likely no disruption in operation due to the pandemic can help enhance the revenue and expand profit margins in the coming years. We expect revenue/EBITDA to grow at CAGR of 15.9%/40.5% over FY21-FY24E. We think the base case fair value of the stock is Rs 245 (6.5x FY24E EPS) and the bull case fair value is Rs 283 (7.5x FY24E EPS) over the next 2-3 quarters. Investors can buy the stock in the band of Rs 214-226 (5.8x FY24E EPS) and add more on dips to Rs 187-190 band (5x FY24E EPS)," HDFC Securities has highlighted.
The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.