Whalesbook
ONGC Contract Boosts Deep Industries' Order Book
Deep Industries' stock rose more than 8% on April 7 after receiving a Letter of Award from the Oil and Natural Gas Corporation (ONGC). The three-year contract, valued at ₹59 crore, involves hiring natural gas compressor services, along with gas dehydration and HC dew point depression for ONGC's Rajamundry Asset. This adds to recent wins, boosting the company's order book to ₹3,050 crore as of June 30, 2025. The stock's strong performance seemed driven by this news, while the broader BSE Oil & Gas index saw only minor gains that day, despite a recent downward trend.
Deep Industries Pursues Green Hydrogen Expansion
Beyond traditional oil and gas services, Deep Industries is actively entering the green hydrogen sector. The company recently signed a Memorandum of Understanding (MOU) with Advait Greenergy (AGPL) to jointly pursue green hydrogen projects. This signals an aim to enter the growing renewable energy market. This sector often sees high valuations, with companies like Adani Green Energy trading at P/E ratios over 100. Deep Industries' own P/E ratio has been variable, sometimes negative due to profit swings. When positive, it's been around 10-12x, showing a more value-focused approach than pure green energy firms.
Financial Stability and Mixed Quarterly Results
Deep Industries maintains a low debt-to-equity ratio, around 0.10 as of H1 FY26. This financial stability supports its two-part growth strategy. Recent quarterly results are mixed. Q4 FY25 saw higher revenue but lower profits year-on-year. Q3 FY26, however, reported strong growth with ₹221.5 crore in revenue and ₹71.3 crore in net profit, showing a 30.8% profit margin. This indicates improving operations, though consistency is key. The company's consistently strong order book provides good revenue visibility for the coming years.
Challenges: Green Hydrogen Execution and Valuation Concerns
The main challenge is the company's success in transitioning to and scaling up green hydrogen operations. Green hydrogen is capital-intensive and competitive, facing major technology and regulatory hurdles. While Deep Industries' management is experienced, their compensation is below industry peers. This might mean efficient operations but could also affect attracting top talent. Additionally, the company faces a dispute with ONGC over a suspended rig contract, potentially disrupting revenue by ₹5-6 crore in Q4 FY26, though the company contests this. The stock's fluctuating P/E ratio suggests market doubt about its earnings quality and future growth. This contrasts sharply with stable, positive P/E ratios of established giants like Indian Oil (5.2-8.07x).
Outlook: Balancing Traditional and New Energy Growth
Deep Industries aims for ambitious 30-35% growth in fiscal year 2027. This target relies on its existing order book and expansion into new energy areas. The new ONGC award and its focus on green hydrogen place the company at a key turning point. Investors are watching how Deep Industries balances investing in traditional energy for immediate cash flow against the higher risk, higher reward of green energy. Securing and efficiently executing significant green hydrogen contracts will be vital for its valuation and sustained growth.