Asian Energy Services Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Revenue missed on early monsoon and contract delays: Q1 FY23 revenue fell significantly below expectations, driven by a one-month loss of seismic work in Assam and a delayed government contract award.
• Coal handling plants are the near-term growth engine: Ground activity has started on a Jharkhand CHP project, and management expects CHP revenue to drive improvement from Q2 onward, with a strong pipeline for the next 2-3 years.
• O&M segment is live but small, with more pursuits underway: The Vedanta Suvali O&M contract commenced on 1st April and booked initial revenue, while the company is actively pursuing two more O&M tenders of similar size.
• Dividend hopes are pinned on crossing a loss-recovery threshold this year: Management is "quite hopeful" of crossing the carried-forward loss limit in FY23, which would allow the board to consider a dividend and formalize a dividend policy.
• What to watch next quarter: Whether the resumed seismic work and newly started CHP project convert into a material revenue recovery in Q2, and any progress on securing an additional O&M contract.

Revenue Miss: Monsoon and Contract Phasing

• Seismic interruption in Assam: An early monsoon halted seismic operations for one month, a period that had been included in the Q1 forecast based on the prior year's ability to work through the season.
• Government contract delay: A NSP-2 contract award expected to begin work in May/June was pushed out by a couple of months, with tenders yet to be released, further depressing seismic revenue.
• CHP phasing impact: Revenue from coal handling plants was also soft; the Gevra project slowed due to monsoon and other challenges, while another CHP contract only started work after receiving land acquisition and approval clearances from the client.
• O&M contribution was minimal: The Vedanta Suvali O&M contract started on 1st April and booked some revenue, but the amount was not significant relative to the annual expected contract value; the run rate is expected to increase in coming quarters.

Ashutosh Kumar: “Our forecast for this quarter included seismic revenue in Assam. That was based on our experience last year when we could work during monsoon also. However, this year, the monsoon came early in Assam, and due to that, our seismic work in Assam was interrupted. We effectively lost a month.”

Coal Handling Plant: The Recovery Driver

• Jharkhand project kick-off: Ground activities started this quarter on a coal handling project in Jharkhand, and it is expected to contribute to overall revenue during the year.
• Gevra recovery plan: Field activity at the Gevra CHP project is expected to pick up post-monsoon, and management is "in the process of expediting" execution to recover revenue lost in the last quarter.
• Strong medium-term pipeline: Management sees more than enough projects coming up in the coal handling plant segment for the next 2 to 3 years, providing multi-year revenue visibility.
• Coal vs. renewables narrative: Management pushed back on the idea that renewable energy is crowding out coal, stating there is space for both in the Indian context and that coal growth is not being impacted.
• Phasing logic: On one slightly delayed CHP contract, management explained the decision to slow activities for a couple of months and then expedite later to maintain cost and resource balance, expressing confidence in covering the lost ground.

Sumit Maheshwari: “You decide to slow down activities for a couple of months and you decide to further expedite the activities in the coming months to maintain the balance, both in terms of your costing and in terms of your utilizing best of your resources giving the best value to your resources.”

Seismic Business: Waiting on Government Policy

• Current state is weak: Seismic performance was poor this quarter, with no tendering activity in the segment for the last 5-6 months.
• Work resumption underway: After the brief monsoon interruption, seismic work in Assam has resumed at one site, with another site expected to resume next month; post-October, no monsoon effect is anticipated on the overall seismic business.
• Recovery expected in H2: Management is "quite hopeful to make a very good recovery in coming quarters in seismic business, especially in Q3 and Q4," when the monsoon season ends and work can proceed uninterrupted.
• Crude oil price is not a direct driver: Despite rising crude oil prices, management clarified that seismic orders are driven by government policies and decisions to start the national seismic program, not by commodity price movements. The company's endeavor is to enter long-term contracts to minimize cyclicality related to crude oil prices.

Ashutosh Kumar: “We all wish that the crude oil increase will have an impact on seismic. Unfortunately, no, because seismic orders are driven by government policies and government decisions to start the national seismic program.”

O&M Segment: Early Innings

• Vedanta Suvali live: Mobilization of the integrated O&M contract for Vedanta's Suvali facility was successfully completed, and the contract started on 1st April with revenue booking commenced.
• Amguri field progressing: The O&M contract for the Amguri field is also progressing well.
• Pipeline of opportunities: Management is working on a few more O&M opportunities and intends to consolidate its position further by securing at least one more contract this year. Two tenders are being actively pursued, from Vedanta and other private players, with a similar ticket size of approximately ₹200 crore over 3-4 years.
• No guarantee on timing: Management cautioned that O&M contracts take a long time to materialize and cannot guarantee another win within a specific timeframe.

Costs and Margin Normalization

• Employee cost rose ahead of revenue: Employee costs increased due to hiring for the newly started O&M contract, retaining employees in the seismic business despite flood-affected operations in anticipation of recovery, and hiring for CHP business execution whose revenue will come in future quarters.
• Normalization expected: Management stated that employee cost versus revenue will normalize in coming quarters as CHP and O&M revenue starts flowing, implying current margin pressure is a timing mismatch rather than a structural shift.

Capital Allocation: Dividend and Buyback

• Dividend path: The company had carried forward booked losses that prohibited declaring a dividend; those losses have now been recovered. Management is "quite hopeful" of crossing the carried-forward loss limit this year, after which the board will "definitely consider" declaring a dividend and will put up a formal dividend declaration policy.
• Buyback deflected: When asked about a share buyback given current valuation and value erosion over five years, management stated that is a board decision and pivoted to the performance narrative without addressing buyback feasibility directly.
• No promoter creeping acquisition: Management confirmed there has been no buyback or creeping acquisition by promoters in the last couple of years after the initial investment.
• Oilmax merger denied: Management stated there is "nothing on cards or on discussion" regarding a merger with Oilmax, and no such proposal is on the board's agenda.

Sumit Maheshwari: “Once we cross that limit which we are quite hopeful to do in this year, then the board will definitely consider declaring a dividend and the board will put up a formal dividend declaration policy also.”

Guidance & Commitments

Key Metrics