Buy Shiv-vani for CMP Rs 433 Target Rs 650

Huge order inflow for Shiv-Vani on the back of a surge in E&P capex
At the end of 2006, India’s crude oil reserves stood at 5.7bn barrels according to
BP Statistical Review 2007. That amounts to only 0.5% of global reserves. At the
current rate of production, the country’s crude oil reserves would last for only 19.5
years, as against 40 years for global reserves. With more than 80% of India’s
sedimentary basin still under -explored, huge potential remains untapped. Over the
last seven years, through six rounds of National Exploration Licensing Programme
(NELP), the Government of India has attracted investments of US$12bn for exploration
activities in the country. The surge in E&P capex will result in huge order flow for Shiv
Vani Oil and Gas Exploration Services Ltd (SVL), one of the leading players in onshore
seismic surveys. SVL’s current order book is Rs3.4bn and the company has applied for a
further Rs4bn worth of orders.

Commitments made in first six NELP rounds yet to be completed, NELP VII
due in December 2007
So far, only 22% of the on-land acreage under the first six rounds of NELP has been
awarded under licensing, as compared to 64% for deepwater and 75% for shallow
water. Round VII of NELP is due in December 2007 and it is likely that 29 of 57 blocks
on offer will be on-land blocks. Thus, the impetus on on-land exploration should rise in
future years. This would directly benefit SVL, which is primarily an on-shore player.

CBM turnkey projects: a new source of revenue
SVL has a contract in hand to develop coal-bed methane (CBM) fields with ONGC.
It has also secured a work-over contract for Reliance Industries’ CBM field. The
company is the first to provide such services in the country. CBM is fast emerging
as a major source of gas for gas-starved India. Three rounds of bidding for CBM
blocks are through and 26 blocks have been offered. With its expertise in such
projects, we believe SVL can get more contracts in the future, adding to revenue
growth. The ONGC contract is worth Rs7.5bn and is to be executed in 24 months.

Attractive valuations: Recommend a BUY with an upside of 52.8%
At CMP of Rs424, the stock trades at P/E multiple of 9.2x and 7.2x on estimated
earnings of Rs46.3 and Rs58.5 for FY09 and FY10 respectively. Given the expected
robust build-up in SVL’s order book and a rise in operating margins to 39%, we
recommend a BUY with a target price of Rs648, implying an upside of 52.8%.