Oil Country Tubular - Rs 70.00

Incorporated in 1985, Oil Country Tubular Limited (OCTL) is among the world’s leading manufacturers & processor of oil country tubular goods specially required by oil drilling and exploration industry. Its expertise lies in production of wide product range of product such as drill pipe, heavy weight drill pipe, drill collars, production tubing, casing, tool joints, couplings, pup joints, nipples, subs, and cross overs. It also deals in oil field accessories such as rotary subs, lift plugs and lift subs, stabilizer sleeves, welded blade stabilizers & integral stabilizers and cast steel lifting bails. But broadly, company has segmented its product range into Drill pipes, production tubing & Casing pipes.

· Drill pipe, a seamless pipe is the principal tool, other than the rig, required for drilling of an oil or gas. OCTL is among the handful companies in India, manufacturing coated as well as uncoated drill pipes up to five and half inches.

· Casing pipes are the steel pipes, placed in an oil or gas well as drilling progresses to prevent the wall of the hole from caving in during drilling, to prevent seepage of fluids and to provide a means of extracting oil & gas. OCTL has the capabilities to produce casing pipes up to 20 inches outer diameter.

· Production tubing is also a tubular pipe but held inside the casing pipe to provide a continuous bore from the production zone to the wellhead in case the oil has stopped flowing naturally.

Presently, drill pipes constitute ~50% of total sales followed by 35% from casing pipes and 10% from production tubings. The rest 5% of revenue comes from services as OCTL also offers following facilities to its clientele:

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  Reconditioning of Drill Pipe


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  Re-threading of Drill Pipe


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  Internal Plastic Coating of Drill Pipe and Tubing


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  Make and Break of Tool Joints


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  Tool Joint Hardbanding


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  Tubing and Casing


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  Field Inspection of Tubulars.

At OCTL, the complete manufacturing & processing activity is concentrated in a single unique integrated plant located at Narketpally, Nalgonda and with corporate headquarters in Hyderabad, India. It boast of having an installed capacity of 10,000 TPA for drill pipes, 50,000 TPA for casing pipes and 15,000 TPA for production tubings. However against this total installed capacity of 75,000 tonne, OTCL produced only 25,000 tonne for FY09 leading to one third capacity utilization. Categorically, 75% utilization for drill pipes, 30% for casing pipes and 15% utilization for production tubings. The facilities at the plant include upsetting, heat treatment, non-destructive testing, metallurgical laboratory, gaging and calibration laboratory, tool joint and coupling threading, casing and tubing threading, friction welding of drill pipe, hydrostatic testing and internal plastic coating of tubulars. Importantly, OCTL is licensed by American Petroleum Institute (API) as processor/threader of casing & tubing, processor of drill pipe and manufacturer of rotary drill stem elements according to API specification. In addition to the manufacture of API Products, company is also a licensee for the manufacture of high performance premium connections which are basically threaded connections with a gas tight seal and the ability to handle high torque, tension and pressure. Being ISO/TS 29001 certified, company’s products are well accepted in the international market and it has been regularly exporting to Russia, Middle East, Far East and European countries. Infact it derives 50% of its revenue from exports. Domestically ONGC and OIL are its two biggest customers apart from other central and state govt companies. For future growth, company has planned to doubled its drill pipe manufacturing capacity to 20,000 TPA but it seems the planned has been dropped. Now OTCL is contemplating to triple its casing pipe capacity to 1,50,000 TPA in the current fiscal itself.

Being a manufacturer of oil country tubular products, OCTL’s fortune is mainly dependent on oil & exploration activities. With crude oil price shooting up at almost US$ 150, the oil exploration activities were at its peak in 2007. But post the economic meltdown & global recession in 2008, crude price as well as exploration activity has come down significantly. Thus the order book which stood at Rs 250 cr in March 2007 now stands at Rs 150 cr in March 2009. However the situation has improved to some extent in the recent past and the long term prospects of the industry looks promising. More importantly, OCTL made a smart turnaround in FY08 as its operating margin improved drastically and it also wiped out all its earlier losses. What more, in FY09 it has even made itself debt free and is now generating strong cash flows. For FY09 it recorded 25% rise in sales to Rs 420 cr but PAT zoomed up 125% to Rs 65 cr due to lower interest cost. This translates into EPS of Rs 15 on equity of Rs 44.29 cr. After a gap of more than 20 years, OTCL has returned back to dividend paying list by declaring 15% dividend for FY09. Despite challenging times, company has reported good nos for June’09 quarter as its revenue grew by 17% to Rs 72 cr and profit increased by 25% to Rs 14 cr due to lower tax provisioning. Considering all the factors, OTCL is estimated to clock a turnover of Rs 375 cr and net profit of Rs 60 i.e. EPS of Rs 14 for FY10. Further it has the potential to post an EPS of Rs 18 for FY11. Long investors are advised to buy at current levels and add on declines for a price target of Rs 110 in 12~15 months.

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