Deep Industries Limited

The oil and gas sector is rebalancing, with global oil demand projected to grow by 1.6 million barrels per day in 2027, reaching 106.2-107.8 million barrels a day. India is aggressively expanding LNG infrastructure and pushing natural gas as a bridge fuel. Government policies, including rationalized royalty rates (15-20% deduction on wellhead price) and special CBM rounds in 2025-2026, aim to boost domestic production and reduce import dependency, with a target to connect the national gas grid to almost every state by FY27.

Deep Industries delivered consistent operational performance in FY26, maintaining healthy asset utilization across onshore drilling, workover services, gas processing, and production enhancement. The company's order book remains robust, consistently revolving over ₹3,000 crores, providing multiyear revenue visibility. Strategic diversification has reduced single client dependence to below 40% of total operating revenue, positioning the company for continued growth.

Deep Industries acquired Kandla Energy and Chemicals Limited in March 2025 through a corporate insolvency process, with the merger effective March 30, 2026. This acquisition aimed at backward integration for in-house chemical and hydrocarbon fluid sourcing. Following an intensive recovery program, the company wrote off ₹208 crores of Kandla's legacy trade receivables, a non-recurring^📎 and non-cash adjustment that did not impact core cash profitability in FY26. Separately, ₹160 crores of Dolphin Group trade receivables are retained due to ongoing arbitration awards and optimism for recovery.

For Q4 FY26, operating revenue rose 49% YoY to ₹248.7 crores, with EBITDA growing 71% YoY to ₹106.85 crores (39% margin). Full-year FY26 operating revenue jumped 55% to ₹891 crores, and EBITDA grew 44% to ₹424.82 crores. Net profit (excluding one-time items^📎) was ₹148.6 crores for Q4 and ₹352.9 crores for FY26. Cash profit for FY26 was ₹442 crores (46% margin). Adjusted ROE and ROCE improved to 21.8% and 19.2% respectively, with a strong debt-to-EBITDA ratio of 0.48.

Management projects revenue growth of 25-30% for FY27 and FY28, with potential PAT of ₹450-500 crores by FY28. Key strategic priorities include production enhancement contracts (PEC), higher capacity drilling rigs, and expanding into the offshore segment. The company aims to maintain an EBITDA margin of 44-45% year-on-year and expects new capex to yield an ROI of over 20%.

The company plans a capex of approximately ₹300 crores for FY26, including ₹150 crores for PEC contracts and investments in rig and gas processing assets. New 2,000 horsepower drilling rigs are estimated to cost ₹100-120 crores each. Capex will be funded through a mix of internal accruals and debt. Net cash flow from operating activities increased to ₹270 crores in FY26, up from ₹210 crores in FY25, contributing to a healthy debt-to-EBITDA ratio of 0.48. The previously planned QIP has been decided against.

A gas leak incident at Well Mori-5 in January 2026 led to a 5-6 month shift in the production enhancement timeline for that specific contract. While the well was temporarily shut down for compliance, other gas production activities remain intact. Management expects the contract to regain its original run rate of ₹120-150 crores per quarter after equipment re-deployment, anticipating a 1-2 quarter delay. A separate incident involving a damaged workover rig is under active consideration, with clarity expected soon.

Deep Industries has entered an MOU for green hydrogen, aiming to provide 'balance of plant' on a charter hire basis. This is a new vertical, with substantial details expected in 2-3 quarters. In the offshore segment, the company is being selective, having entered with one asset and planning to add more assets gradually. Management views both onshore and offshore exploration as equally promising, with increasing participation from private players alongside ONGC and Oil India.