Jindal Drilling & Industries Secures New ONGC Contract

Jindal Drilling & Industries has announced a new rig contract award from ONGC, significantly contributing to its robust order book of INR 1,310 crore. The company is also managing a refurbishment cycle for three rigs.

Reader Takeaway: New ONGC contract provides order book strength, but H2 revenue dip due to refurbishments is a near-term concern.

What just happened

Jindal Drilling & Industries secured a new contract for one rig from ONGC. This adds to its existing operations and bolstered its order book to INR 1,310 crore. The company also expects a decline in revenue for the second half of FY27 due to the de-hiring and refurbishment of three rigs. Each refurbishment is estimated to cost between INR 90 crore and INR 110 crore.

Why this matters

The new contract provides revenue visibility and strengthens the company's order book. However, the planned downtime for three rigs for refurbishment will impact topline performance in the latter half of the financial year. Investors will be watching how the company manages EBITDA margins during this period, with a target of 35% blended EBITDA margin.

The backstory

Jindal Drilling currently operates five rigs under long-term contracts with ONGC. The new contract for a sixth rig, currently undergoing refurbishment in the UAE, is expected to be deployed by October 2026. The company has also received INR 163 crore related to a long-standing dispute with ONGC, which is still pending in the Supreme Court, though management views the probability of loss as remote.

What changes now

The company will focus on executing the refurbishment of three rigs. This involves a significant capital expenditure and downtime, impacting immediate revenue. The redeployment of these rigs will be crucial for future revenue streams.

Risks to watch

Key risks include potential delays in rig refurbishment, higher-than-estimated refurbishment costs due to inflation in labor and material, and any unforeseen developments in the ongoing Supreme Court case with ONGC. The timing of redeployment of the refurbished rigs is also critical.

Peer comparison

Jindal Drilling operates in the offshore drilling services sector, facing competition from other domestic and international players. Companies like Aban Offshore and Deep Industries are also active in this space, often bidding for similar contracts from ONGC and other oil exploration entities.

Context metrics (time-bound)

The company's order book stands at INR 1,310 crore. The refurbishment costs are estimated at INR 90-110 crore per rig. A total of INR 163 crore has been received concerning the ONGC dispute.

What to track next

Investors should closely monitor the progress of the rig refurbishment program, the successful redeployment of the three de-hired rigs, and the company's ability to maintain its target EBITDA margin of 35% despite operational impacts.