Selan Exploration Technology
Cluster: Ugly Duckling
Recommendation: Hold
Price target: Rs360
Current market price: Rs336
Price target revised to Rs360
Result highlights
Selan Exploration Technology (Selan) has announced its results for the second quarter of FY2010. On an annual comparison basis, Selan?s Q2FY2010 revenues are down sharply by 48.4% as its realisations had been abnormally high in Q2FY2009 and the company had made additional efforts to boost its volumes to take advantage of the spike in the crude oil prices globally.
However, on a sequential basis, the company has reported a flattish growth in revenues in spite of the 17% drop in the volume sold during Q2FY2010. The volume declined sequentially due to workover drilling in some of its wells. However, the average realisation increased by 24.4% sequentially and made up for the decline in the volumes sold during the quarter.
The operating profit margin (OPM) improved sequentially to 70.2% largely due to a lower provisioning for hydrocarbon reserves during the quarter. Consequently, the operating profit grew by 19.4% sequentially to Rs13.3 crore in Q2FY2010.
The other highlights are that the company has announced the closure of its buy-back offer as the prevailing share price is much higher than the buy-back limit of Rs230 per share. The company has bought back and extinguished two lakh shares since the announcement of its buy-back offer made on January 23, 2009.
In terms of the outlook, the management aims to begin the seismic study in its Indorora oil field in the next few quarters. It has earmarked a total capital expenditure of Rs100 crore over the next two to three years to develop and commercialise the Indorora oil field, which would result in a significant jump in its production volumes in the coming years. However, the volume growth in the current fiscal would remain flattish or decline marginally as the company does not expect to commercialise any new wells even from the existing producing oil field in this year.
In view of the muted volumes in Q2FY2010, we have revised our volume assumptions and fine-tuned our average realisation assumption for FY2010 and FY2011. Consequently, the revised earning estimates for FY2010 and FY2011 stand at Rs19.6 and Rs24.3 respectively.