Jindal Drilling And Industries Limited (NSE: JINDRILL) Q2 2025 Earnings Call dated Oct. 30, 2024
Corporate Participants:
Varatharajan Sivasankaran — Investor Relations
Kaushal Bengani — Director General Manager, Investor Relations and Finance
Raghav Jindal — Managing Director
Analysts:
Swapnil Kabra — Analyst
Pritesh Chheda — Analyst
Nirvana Laha — Analyst
Udit Sehgal — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Jindal Drilling Q2 FY25 Results Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Varatharajan Sivasankaran [Phonetic] from Antique Stock Broking. Thank you, and over to you, sir.
Varatharajan Sivasankaran — Investor Relations
Thanks, Shlok. Good afternoon, everyone. I’d like to extend a very warm welcome to all the participants and the management of Jindal Drilling. We have with us Mr. Raghav Jindal, Managing Director; and Mr. Kaushal Bengani, DGM, Investor Relations and Finance.
I’d like to hand over the call to Mr. Kaushal for the opening statement, and then we can move on to Q&A. Mr. Kaushal, please.
Kaushal Bengani — Director General Manager, Investor Relations and Finance
Thank you. Happy Diwali, shareholders, and thank you for joining our earnings call. In line with the communication provided in our previous earnings call, our rig Jindal Supreme has been deployed with ONGC. This rig commenced operations on 15th October 2024, which is ahead of the deployment timeline given earlier of November 2024. Our teams, both in-office and on the rig worked, relentlessly to ensure faster deployment.
Further, we are in the final stage of acquisition of rig Jindal Pioneer and are still awaiting approval from statutory authorities. There has been some communication between them and us, and we expect that the matter will be approved shortly. Earnings will improve immediately on acquisition of the said rig.
I will briefly summarize key financial indicators. On comparison of Q2, FY25 with last quarter Q1 FY25, our revenue broadly remained the same. EBITDA reduced by 21% with reduction in PAT and EPS of around 30%. This reduction in earnings was expected and was communicated earlier. It has been primarily attributed to expenses and depreciation of rig Jindal Supreme, which was not generating revenue, as it was under refurbishment. As mentioned earlier, this rig has now been deployed on 15th October 2024, at a day rate of $88,859.
The variation in profitability in Q2 FY25 versus Q2 FY24 can be explained by the fact that only one company-owned rig, that is, Discovery 1 was operating in Q2 FY25. In Q2 FY24, two company-owned rigs, that is Discovery 1 and Jindal Supreme were operating.
I would now like to take you through our earnings presentation, the first slide talks about Jindal Drilling. We are, as mentioned earlier, the leading offshore drilling services contractor in India’s oil and gas sector. We have more than 35 years of experience in the sector of offshore drilling. We are supported by an efficient and experienced operational and management team, who ensure that our efficiency is not compromised, and we achieve highest levels of safety.
We’ve been supporting and serving ONGC for the past 30 years in their drilling program. We’ve always explored opportunities with them. Apart from five offshore jack-up rigs that we are currently deploying with ONGC, we also provide mud logging and directional drilling services to the oil and gas sector.
The order book position on Slide 5, has been provided with day rates and contract durations for each of these rigs. As per request received from few shareholders, we have now bifurcated this order book further rig-wise and financial year-wise, so that understanding is more clear in terms of the revenue potential that is there with these contracts. On conclusion of contracts, usually fresh tender is issued to ensure continuity in drilling, as per customers’ requirements.
I’ve already spoken about the financial highlights, which are on the next three slides. The EBITDA mix has been given on Slide 10, wherein you will note that the rig segment contributes to almost 90% of total EBITDA and that is the area of focus, where we want to grow further. Borrowings have improved in September ’24 as compared to the position in March ’24. Our net cash position has improved from INR51 crores to INR69 crores.
In FY25, we had also fully paid one loan, which was taken against rig Discovery 1 entirely from internal accruals. The shareholding structure has been given on the last slide, wherein names of key marquee investors have also been put out.
I would now like to hand over to Mr. Varatharajan to open the floor for questions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Swapnil Kabra from SK Enterprises. Please go ahead. Mr. Swapnil, you may go ahead with your question. Your line is unmuted. Mr. Swapnil. The current participant is…
Swapnil Kabra
Hello, hello, hello, sir.
Operator
Yes, sir. Please go ahead.
Swapnil Kabra
Hello. Yeah. So firstly, congratulations on a good set of numbers. Sir, I have two questions. What was the total cost of refurbishment of Jindal Supreme? And how has it spread over the quarters? Can you quantify the impact of this cost per quarter?
Kaushal Bengani
We have not been giving out specific refurbishment numbers rig-wise. The cost of refurbishment is significant because there was a change in the MODU standard for which we had to do a lot of expenditure. The way we treat this expenditure is by amortizing it over a period of three years, which is the contract duration. That is the way we’ve been treating other refurbishment expenditures as well for the rigs.
Swapnil Kabra
Okay. And sir, what happens to the rigs if the — if post the completion of orders, say ONGC is not willing to renew the orders? Do we have any backup plans like to move them to the international waters or to utilize them in any way?
Raghav Jindal
So what did you say? If ONGC does not take the rigs?
Swapnil Kabra
Yeah, yeah. If they do not renew the contract.
Raghav Jindal
So particularly about Jindal Supreme, if the contract was renewed and it’s a fixed contract for three years. So for three years, it is locked. If — and we see contracts with ONGC in the coming years as well for the rigs, which are going to be ending their contract. And if we do not see any contracts coming up, we are talking to international markets as well. There’s a lot of scope in the Far East, and we have been in touch with those parties as well.
Swapnil Kabra
Okay. So you don’t see any risk there, right?
Raghav Jindal
No, we don’t see any risk there, but there’s a lot of demand worldwide, especially with the war and everything the prices are going up again, and hopefully, it’s a great market to be in.
Swapnil Kabra
All right, sir. That was helpful. Thank you so much. I’ll join the queue again.
Operator
Thank you. The next question is from the line of Pritesh from Lucky Securities. Please go ahead.
Pritesh Chheda
Yeah. Thank you for the opportunity. I have three, four questions. One, On Jindal Supreme, what is the incremental day rate that we have got versus the original rate that we had? And how much of that incremental day rate should flow through your EBITDA? That’s the first question.
Kaushal Bengani
Original — sorry, originally, the rig was deployed at $40,700, in the previous contract, which concluded in March 2024. From 15th October 2024, it has been deployed on the new contract at $88,859. Got it.
Pritesh Chheda
Okay. And what should — so how much of incremental should flow down to your operating profitability or what should be the margin on this AT — this revised rate?
Kaushal Bengani
Jindal Supreme is a company-owned rig, so margins will be higher than rented rigs. If we were profitable when rig was deployed at INR40,700, then any additional rate will flow down into EBITDA.
Pritesh Chheda
Okay. Bulk of it — should I say bulk of it will flow down to the EBITDA?
Kaushal Bengani
Yes.
Pritesh Chheda
Okay. And my second question is, sir, between quarter one and quarter two, on a standalone basis, there is a INR10 crore lower EBITDA. So — and both these quarters were without Jindal Supreme. So just we wanted to know, if there is anything in this quarter two to understand what is the normalized EBITDA without Jindal Supreme.
Kaushal Bengani
There were certain operational expenses in relation to refurbishment of Jindal Supreme, which would not be amortized, which were booked in the second quarter, as refurbishment activities increased on nearing the date of deployment.
Pritesh Chheda
Okay.
Kaushal Bengani
Part of that was depreciation. So depreciation was also there in the first quarter. It was only an increase in operational expenses attributable to Jindal Supreme.
Pritesh Chheda
So is it fair to assume there will be some operational expenditure related to Jindal Supreme also a part of quarter one also, in that INR40 crore EBITDA reported?
Kaushal Bengani
Yes. Some of them.
Pritesh Chheda
Okay. Good. My third question…
Kaushal Bengani
[Speech Overlap] component was there in the second quarter, as refurbishment expenses tend to increase as the date of deployment nears.
Pritesh Chheda
Okay. My third question is, you mentioned the acquisition that you’re doing out of your JV will be, there is some to and fro of conversation and you think that you will be able to announce it soon. What does that mean actually? Are we at advanced stage and when once Jindal — this particular acquisition comes through and your Jindal Supreme quarter numbers from quarter three starts coming on that revised rate, we are actually looking at a substantial improvement in EBITDA, maybe a three times type or a four times type improvement in quarterly EBITDA, is this assessment correct?
Kaushal Bengani
I don’t have the numbers right now immediately, but the maximum profit that Jindal Drilling generates is from company-owned rigs. We have two company-owned rigs right now, of which one has been deployed on 15th October. That improvement in earnings will definitely be visible in the coming quarters incrementally to that improvement. So if we are able to buy Jindal Pioneer within the next quarter, then earnings will jump up further because right now only 49% of the profit accruing from the joint venture in which Jindal Supreme is housed is with Jindal Drilling.
Pritesh Chheda
Okay.
Kaushal Bengani
So — and to complete the response, we had submitted our application in April 2024 with the authority for acquisition of this rig. There has been some communication with the authority and us. And we are hopeful that it gets concluded shortly. We have been following up as and when it is appropriate. We also want to buy the rig as early as possible.
Pritesh Chheda
Okay. And my last question is, in absence of let’s say any acquisition that or asset creation that you do, what should be your debt and net cash position, what should be your debt or net cash position in ’25 and ’26 considering the cash flows that you have?
Kaushal Bengani
Considering the cash flows that we have right now, debt is — debt position is at INR173 crores. This will reduce to INR132 crores, as on 31st March ’25. And thereafter the repayment schedule is INR66 crores in the next two financial years. But since we’ll be generating cash within the company and the joint venture companies will also be generating cash, the net cash position, which is currently at INR69 crores will improve rapidly.
Pritesh Chheda
Okay. My last question is, do you have a rig renewal and rig repricing lined up in the next four quarters, four quarters to six quarters, or you’re done mostly with everything for the next four quarters to six quarters?
Kaushal Bengani
There is one rig, which is up for renewal, Jindal Explorer, which is a rented rig. Mr. Jindal will update you on the same.
Raghav Jindal
Okay. Explorer is going to end contracts in May ’25. ONGC is in talks for getting two new contracts before the year ends. So hopefully, we will be participating in both those tenders and expect to gain the contract, respectively.
Pritesh Chheda
But she will be out of service because of refurbishment or…
Raghav Jindal
You know, the contract, it’s a three-year contract, which started in May ’22, it ends in May ’25.
Pritesh Chheda
Yeah. That I understand. In May ’25, when the contract ends, does this rig require refurbishment, so it will be out of service?
Raghav Jindal
Yeah. It will require a little bit of refurbishment, as normal wear and tear that happens over three years. So — and plus most probably there will be monsoon period at that time. So the rig is likely to get extended up to August, September. And then once we have it, we would take a couple of months to refurbish it before it goes into its next contract.
Pritesh Chheda
Okay. Okay. Since it’s a lease asset, do you have to incur or it’s the owner of the rig, who will incur the refurbishment?
Raghav Jindal
It depends on the way the new contract is negotiated between the owner and us. We will be able to update you when that is completed.
Pritesh Chheda
Okay. Okay. Thank you very much. All the best to you guys and Happy Diwali, sir. Thank you very much.
Raghav Jindal
Happy Diwali to you, too.
Pritesh Chheda
Thank you, sir.
Operator
Thank you. [Operator Instructions] And the next question comes from the line of Nirvana Laha from Badrinath Holdings. Please go ahead.
Nirvana Laha
Hi, thanks a lot for the opportunity, and congrats on another very stable quarter. So, sir, my first set of questions are on Jindal Supreme. So sir, looks like the accounting treatment for Jindal Supreme refurbishment is also proceeding in the same manner that we have done for the other refurbished assets before this, right?
Kaushal Bengani
Yes.
Nirvana Laha
Okay. And sir, if I look at your balance sheet, I’m hazarding a number that it looks like the refurbishment expense was in the nature of INR115 crores to INR120 crores, and the quarterly amortization can be expected to be in the INR10 crore range. I know you don’t give out exact numbers, but these are my calculations, and if you can just indicate us, these are broadly correct.
Kaushal Bengani
For Jindal Supreme, the total refurbishment expenditure is more than INR130 crores, that is, because there was a change in the MODU standard as per the safety requirement, we had to undertake that entire exercise. So larger expenditure was undertaken to ensure that the rig meets the new standards required by ONGC and that is the way we have done it so that timely deployment can be done.
Nirvana Laha
Sure, sir. If you can indicate what the quarterly refurbishment expense might be like, is it closer to INR20 crores or is it closer to INR10 crores?
Kaushal Bengani
We are not giving that out for any rig.
Nirvana Laha
Okay. Sure. And sir, for this asset, is there going to be any cost after EBITDA, like is all the EBITDA going to flow straight through the PAT to PBT?
Kaushal Bengani
No, everything is above PBT. What do you mean?
Nirvana Laha
Sir, I mean, there is no interest cost or depreciation on Jindal Supreme beyond the refurbishment cost that we’ll be incurring, right?
Kaushal Bengani
Specifically for Jindal Supreme, there is debt of INR173 crores, which we have given out in the presentation. That is for refurbishment expenses.
Nirvana Laha
Okay. Okay. Got it, sir.
Kaushal Bengani
There will be interest cost for this, but it is not — I’ll just clarify. I do not mean to say that expenditure on Jindal Supreme refurbishment is INR173 crores because that is the debt number. The debt number is indicative of rig refurbishment that have been undertaken by Jindal Drilling over the past few quarters. The security for that debt is the Jindal Supreme.
Nirvana Laha
Okay. Okay. Understood, sir. Sir, in the past few quarters, there have been some one-off expenses like when Pioneer was written-down to book value and refurbishment cost for various assets. So in the next four quarters, I mean, once Jindal Supreme you’re saying will — Jindal Explorer you’re saying will extend till September. So we probably have another 12 months in front of us. Are there any one-off costs expected in this duration? We can buy an asset. I’m not including that other than that for the current asset.
Kaushal Bengani
The only one-off in the past four quarters have been certain expenses, which were incurred when Virtue 1 was deployed in October ’23. The second one-off was in March ’24, which was in the joint venture company when the rig was decided to be sold at $75 million, and there was a markdown based on the book value in the books of the joint venture. I don’t believe there are any significant one-offs expected going forward, but that by nature is the definition of one-off that you cannot predict them.
Nirvana Laha
Sure, sir. As things stand, you’re not seeing any expenses, right, for the next four quarters.
Kaushal Bengani
Not at the moment.
Nirvana Laha
Okay. Understood. And sir, in terms of ONGC, you know, they have canceled two tenders or canceled or postponed, we are not clear in June and September, where we were not participating, but others were. So how do you understand the situation right now? And for our Jindal Explorer contract, are we already in talks with ONGC, and how do you see the contract developing? Any color on that will be very useful.
Raghav Jindal
So yeah, these contracts were canceled or delayed. Again, we are also not very clear on what ONGC stand is, but this was because the rates were much higher than what ONGC had expected at that time. However, the international market had softened at that time because Aramco had shelved rigs. But now, again with the war continuing, international markets are increasing in price again, so which gives Explorer a little better rate benefits when it will come into contract. And ONGC because already in less of seven rigs, is looking for rigs, and definitely, we will be participating in the next two tenders that it will be coming out with. And hopefully, we should be able to maintain the rate, if not maintain, it won’t be a sharp decrease.
Nirvana Laha
You mean sir, compared to the existing rate for Explorer?
Raghav Jindal
Existing rate of Supreme, which is $88,000 [Phonetic].
Nirvana Laha
Okay. Got it. Understood.
Raghav Jindal
The closest or the latest contract was at $64,000 [Phonetic] something. So $64,000 [Phonetic] being the benchmark with ONGC being the last contract.
Nirvana Laha
So when was that contracted out, sir?
Raghav Jindal
It was I think within this year only.
Nirvana Laha
Okay. Okay. Got it. And sir, just from a strategic point of view, from ONGC’s point of view, can it afford to let Indian rig operators like Jindal Drilling move rigs out of Indian waters. I know you can’t speak on behalf of ONGC, sorry, sir. But I just want to understand because rigs from Saudi have gotten free. Is it just as an investor, I want to understand, is it that easy for ONGC to replace one rig operator or one kind of rig with another kind of rig? And therefore, is there a strategic dependence of ONGC also on operators like us?
Raghav Jindal
No, definitely they have a dependence on operators like Jindal, who are very efficient. They do not want us to deploy our rigs outside India. When Pioneer had also, which was built for ONGC went outside, they missed out on a — on a new rig, and they have expressed their interest in getting Pioneer back into ONGC. And they have been following up with us, as to when that contract is ending and when they can get the rig back. Also, yeah, any — what was the other question?
Nirvana Laha
No, sir, that is helpful, sir in terms of understanding ONGC’s dependence. And sir, one last question from my side. Hypothetically, if we have to move a rig out of India, say, to international waters, what kind of costs are required to dismantle, move and reassemble if — just to get an idea?
Raghav Jindal
You don’t need to do any of those. The rig is just pulled by or a dry dock is — a dry carry is done if it’s going far away. If it’s going somewhere nearby, it’s just a wet tow. So there are no expenses there. It’s only if a contract requires additional equipment or additional certifications, that’s what need to happen.
Nirvana Laha
Got it. So it’s not a big hassle for Jindal Drilling to move the asset away if needed.
Raghav Jindal
Correct.
Nirvana Laha
Okay. Thank you so much, sir. I’ll come back in the line.
Operator
Thank you. The next question is from the line of Udit Sehgal from Tradewalk Research LLP. Please go ahead. Mr. Udit, you may go ahead with your question.
Udit Sehgal
Yeah. Good afternoon, sir. So sir, regarding the rig, which is up for renewal next year, by when can we typically expect the tender from ONGC to be awarded and by when do we have to take a call on what we have to do with it?
Raghav Jindal
So the tender is not yet out, but is expected sometime in November or December and usually it takes about 30 days for them to award a contract. So we are just waiting right now for them to come out with a tender, which, we know they are — they should be in the next coming couple of months.
Udit Sehgal
Okay, And the rig, which we have on bareboat charter once that comes into our books, do we again intend to charter it out to ONGC or what are the plans for that?
Raghav Jindal
No. It will keep working in Mexico till its term. And after that it’s open, either it will come into ONGC, or we are open to put it anywhere worldwide.
Udit Sehgal
Okay, sir. Thank you.
Raghav Jindal
Our aim is to get it into ONGC and ONGC also wants the same.
Udit Sehgal
Okay. But don’t you — I mean, again, just on a — again on a very macro-level, what is the reason that ONGC keeps — you know they’ve canceled one or two contracts? Is it because they’re trying to get like a better rate, or do they feel like…
Raghav Jindal
It’s to do with the rates.
Udit Sehgal
Specifically. So they feel that by…
Raghav Jindal
[Speech Overlap] rigs were not even ready. Some contractors had built rigs. They were very, very old. It required a huge investment, and they were not able to deliver the rig on-time. That’s why some of those contracts were also canceled.
Udit Sehgal
Okay. So I mean, you feel as there won’t be that much pressure on the rates, like we could get it at the same rate as whatever, $85,000, $90,000.
Raghav Jindal
ONGC has been pressurizing that’s why they did negotiate a lot and that’s why some of those contracts were canceled. Like I said, the last was around $64,000. Situation from that time to now has improved internationally. And hopefully, we should be able to maintain, if not get a little better than that. It all depends upon when the contract comes and what is the competition like.
Udit Sehgal
Okay. So it could be somewhere between the range of $65,000 to $85,000 depending on the situation at that time?
Raghav Jindal
Exactly.
Udit Sehgal
Okay, sir. And regarding the rig with, sir, with the one with Maharashtra Seamless, do we intend to buy that from them, or will it continue on their books itself?
Raghav Jindal
As of now, there is nothing that we have decided.
Udit Sehgal
Okay, sir. Thank you so much.
Operator
Does that answer all your questions with — Mr. Udit?
Udit Sehgal
Yeah, yeah. Thank you so much. Thank you so much. And again, congratulations on the great results and the presentation is very clear. But again, I had one suggestion again, which I made last time that being such a great company and having such you know, visibly great cash flows in the future, there is not much information about Jindal Drilling in the general public. So I mean, maybe just a suggestion we could have an IR team or whatever I mean, so that you know, at least the shareholders are also rewarded. We can see the — as regular shareholders, we can see the visibility in the years ahead, but it’s not that much visible in the market. That’s my — that’s just a general feedback from my side.
Kaushal Bengani
Mr. Udit, on that note, we appreciate your feedback, and that is why we started this earning calls and earnings presentation few quarters ago. And in my assessment, I think it takes around a couple of years of this exercise for the company’s visibility to improve, as much as we would like. We are still in the process of that.
One of the reasons why there is lower visibility is that there is no direct coverage by any institutional broker on Jindal Drilling. That is something which we cannot force, but it was something, which will happen naturally. What is within our control is improving operations, improving presentations, improving earnings calls, trying to engage when required by shareholders.
We have been doing that and some feedback from shareholders are taken into consideration when we prepare the presentation. And this time we’ve included an additional slide, which gives the year-wise potential revenue breakup just so that it is easier to understand. Further, we are also trying to simplify the structure of Jindal Drilling, so that assets are consolidated into Jindal Drilling, which will immediately impact valuation and earnings of Jindal Drilling.
Udit Sehgal
Thank you so much for that, sir. We appreciate that.
Kaushal Bengani
Thank you.
Operator
Thank you. [Operator Instructions] So as there are no further questions from participants, I would now like to hand the conference over to Mr. Varatharajan Sivasankaran [Phonetic] from Antique Stock Broking for closing comments.
Varatharajan Sivasankaran
Thanks, Shlok, I would like to thank all the participants and the management of Jindal Drilling for taking time out to have this discussion on the 2Q results. I wish to wish all the participants as well as the management a Happy Diwali. Have a nice day.
Kaushal Bengani
Thank you, shareholders. Thank you, Mr. Varatharajan, for organizing the call, and thank you, Mr. Jindal, for participating. We aim to improve visibility, and operations simultaneously and we are working on that. We hope to see you again in the next earnings call. Thank you.
Raghav Jindal
Thank you, and wishing everybody a very, very Happy Diwali.
Operator
[Operator Closing Remarks]