Whilst revenue growth remains healthy at 48.61% year-on-year for Q2 FY26, reaching ₹254.09 crores, investors appear concerned about the quality of earnings, with non-operating income constituting a substantial 62.88% of profit before tax. This structural dependency on other income, coupled with deteriorating technical indicators and sustained underperformance versus the broader oil sector, has kept sentiment subdued despite attractive valuation multiples.
The company's operational performance in Q2 FY26 reveals a tale of two narratives. On one hand, Jindal Drilling achieved its highest-ever quarterly net sales of ₹254.09 crores, marking sequential growth of 3.71% and substantial year-on-year expansion. Operating profit before depreciation, interest, tax, and other income surged to ₹106.81 crores, translating to an impressive operating margin of 42.04%, significantly higher than the 22.54% recorded in Q2 FY25. This margin expansion reflects improved operational leverage and better cost management as the company scales its drilling services business.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin |
|---|---|---|---|---|---|
| Jun'25 | 254.09 | +3.71% | 66.11 | -7.68% | 42.04% |
| Mar'25 | 245.01 | +2.32% | 71.61 | +8.58% | 35.50% |
| Dec'24 | 239.46 | +38.82% | 65.95 | +91.33% | 33.69% |
| Sep'24 | 172.50 | +0.89% | 34.47 | -21.41% | 18.11% |
| Jun'24 | 170.98 | -13.61% | 43.86 | — | 22.54% |
| Mar'24 | 197.92 | +8.12% | -15.00 | -146.96% | 24.95% |
| Dec'23 | 183.06 | — | 31.94 | — | 30.07% |
Financial Performance: Revenue Acceleration Meets Profit Volatility
Examining the half-yearly performance for H1 FY26 (April-September 2025), Jindal Drilling reported net sales of ₹492.12 crores, representing remarkable growth of 43.27% compared to the corresponding period last year. This acceleration reflects increased drilling activity for clients such as ONGC and improved capacity utilisation. The company's employee costs in Q2 FY26 stood at ₹22.30 crores, slightly lower than the ₹25.59 crores in the previous quarter, suggesting improved operational efficiency despite higher activity levels.
However, the profitability picture requires careful scrutiny. Whilst operating profit excluding other income reached ₹106.81 crores in Q2 FY26, other income contributed ₹8.47 crores during the quarter. More concerning is the full-year FY25 pattern, where other income of ₹56.00 crores constituted a significant portion of the ₹296.00 crores in total operating profit. This heavy reliance on non-operating income raises questions about the sustainability of reported earnings and suggests that core operational profitability, whilst improving, may not be as robust as headline numbers indicate.
The tax rate in Q2 FY26 stood at 22.41%, normalising from the unusually low 13.46% in Q3 FY25. Interest costs have declined progressively, falling from ₹5.06 crores in Q2 FY25 to ₹2.55 crores in Q2 FY26, reflecting the company's improving financial structure and reduced debt burden. Depreciation charges increased to ₹37.19 crores in Q2 FY26 from ₹16.02 crores in the year-ago quarter, likely attributable to capital investments in drilling equipment and infrastructure to support expanded operations.
Operational Challenges: The Quality of Earnings Question
Jindal Drilling's operational metrics present a mixed picture that warrants careful investor attention. The company's return on equity has improved to 13.59% in the latest period, a substantial enhancement from the five-year average of 6.18%. This improvement indicates better capital efficiency and profitability generation from shareholders' funds. However, the average ROCE of 6.24% over the past five years remains weak, suggesting that the company has historically struggled to generate adequate returns on the total capital employed in the business.
The balance sheet reveals a company in transition. Fixed assets surged from ₹541.64 crores in March 2024 to ₹1,284.59 crores in March 2025, representing a substantial 137% increase. This aggressive capital expenditure programme, likely focused on acquiring or upgrading drilling rigs, positions the company for future growth but also raises questions about return on invested capital and asset utilisation rates. Current assets stood at ₹952.21 crores as of March 2025, whilst current liabilities increased significantly to ₹961.84 crores, primarily driven by a sharp rise in other current liabilities from ₹212.22 crores to ₹816.11 crores.
⚠️ Key Concern: Non-Operating Income Dependency
The most significant red flag in Jindal Drilling's financial structure is the disproportionate contribution of non-operating income to overall profitability. In Q2 FY26, other income constituted 62.88% of profit before tax, suggesting that core drilling operations alone may not be generating sufficient returns. This structural weakness undermines the quality of reported earnings and raises sustainability concerns. Investors should monitor whether the company can reduce this dependency as operational scale increases.
The company's debt profile has improved materially, with long-term debt declining from ₹132.33 crores in March 2024 to ₹69.33 crores in March 2025. The net debt to equity ratio averaged -0.03 over recent years, indicating that Jindal Drilling is essentially a net cash company with minimal leverage. This conservative financial structure provides flexibility for future growth investments and acts as a buffer during industry downturns, though it also suggests that the company may not be optimally utilising financial leverage to enhance equity returns.
Industry Context: Navigating the Oil Services Landscape
Jindal Drilling operates in India's oil services sector, providing critical drilling and mud-logging services primarily to Oil and Natural Gas Corporation (ONGC). The company's fortunes are closely tied to upstream exploration and production activity, which has seen increased momentum as India seeks to enhance domestic energy security. The government's focus on raising domestic crude production provides a supportive backdrop, though the sector remains cyclical and capital-intensive.
The company's five-year sales compound annual growth rate of 27.55% significantly outpaces the broader oil sector, indicating market share gains or capacity expansion. More impressively, EBIT has grown at a five-year CAGR of 60.57%, demonstrating operational leverage as the business scales. The operating profit to interest coverage ratio reached a remarkable 43.87 times in the latest quarter, the highest on record, providing substantial cushion against financial stress and validating the company's improving operational efficiency.
Competitive Positioning: Scale Advantages Emerging
Jindal Drilling's improving margins and growing scale suggest the company is capturing operational efficiencies as it expands its fleet and service offerings. The 42.04% operating margin in Q2 FY26 positions the company favourably within the oil services sector, though direct peer comparisons are challenging given the specialised nature of its drilling operations. The company's long-standing relationship with ONGC provides revenue visibility, whilst the barrier to entry in offshore drilling services limits competitive pressures.
However, the sector faces structural headwinds including volatile crude oil prices, regulatory complexities, and the global energy transition towards renewables. Jindal Drilling's concentration risk—with ONGC likely representing a substantial portion of revenues—exposes the company to client-specific risks and limits pricing power. The recent surge in capital expenditure suggests management is betting on sustained drilling activity, a wager that could prove prescient or problematic depending on India's upstream investment trajectory.
Peer Comparison: Valuation Discount Reflects Quality Concerns
Positioning Jindal Drilling within its peer group reveals why the market has assigned a valuation discount despite improving operational metrics. The company trades at a price-to-earnings ratio of 7.07x, substantially below the oil sector median of approximately 20x and significantly cheaper than peers such as Veedol Corporation (16.43x), Savita Oil Technologies (21.34x), and Hind Oil Exploration (17.21x).
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Jindal Drilling | 7.07 | 1.06 | 6.18 | 0.17 | -0.03 |
| Veedol Corporation | 16.43 | 3.38 | 17.54 | 3.05 | -0.02 |
| Savita Oil Tech | 21.34 | 1.65 | 13.86 | 1.01 | -0.14 |
| Hind Oil Explor. | 17.21 | 1.53 | 12.50 | — | -0.01 |
| Antelopus Selan | 29.82 | 4.18 | 7.45 | — | -0.28 |
The valuation discount becomes more understandable when examining return metrics. Jindal Drilling's five-year average ROE of 6.18% lags behind Veedol Corporation (17.54%), Savita Oil Technologies (13.86%), and Hind Oil Exploration (12.50%). This inferior capital efficiency justifies a lower valuation multiple, as investors rightfully demand compensation for weaker returns. The company's price-to-book ratio of 1.06x also sits well below the peer average of approximately 2.70x, reflecting market scepticism about the true earning power of the asset base.
Jindal Drilling's dividend yield of 0.17% is negligible compared to Veedol Corporation's 3.05% and Savita Oil's 1.01%, indicating that management has prioritised capital reinvestment over shareholder distributions. The dividend payout ratio of just 2.83% confirms this strategy, though it also means income-focused investors receive minimal cash returns. The company's net cash position (-0.03 debt-to-equity) matches the conservative financial structures of most peers, suggesting this is an industry norm rather than a distinctive competitive advantage.
Valuation Analysis: Attractive Entry Point or Value Trap?
Jindal Drilling's current valuation presents a classic investment dilemma: the stock appears statistically cheap on traditional metrics, yet persistent underperformance and quality concerns suggest the discount may be justified. At a P/E ratio of 7.07x versus the industry average of 16x, the stock trades at a 56% discount to peers. The price-to-book ratio of 1.06x implies the market values the company's assets at barely above replacement cost, despite significant recent capital investments.
The company's EV/EBITDA multiple of 5.33x appears reasonable for a capital-intensive business, though it must be evaluated in the context of EBITDA quality. Given that other income constitutes a substantial portion of profitability, the effective operating EV/EBITDA would be materially higher if adjusted for non-recurring or non-operating items. The EV/Sales ratio of 1.79x reflects moderate expectations for profitability conversion, appropriate for a company still scaling its operations.
The proprietary Mojo Score of 54/100 places Jindal Drilling firmly in "HOLD" territory, reflecting the balanced risk-reward profile. The valuation grade has recently been upgraded to "Attractive" from "Fair," acknowledging the compelling statistical cheapness. However, the overall quality assessment remains "Average," tempering enthusiasm for aggressive accumulation. The PEG ratio of 0.04x appears extraordinarily attractive, suggesting the stock is significantly undervalued relative to growth prospects, though this metric should be treated cautiously given the volatility in historical earnings.
Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest
Jindal Drilling's shareholding structure reveals a promoter-dominated company with limited institutional participation. Promoter holding stood at 64.40% as of September 2025, registering a marginal increase of 0.16 percentage points from the previous quarter. This stable and substantial promoter stake provides management continuity and alignment with minority shareholders, though the lack of meaningful stake reduction suggests limited opportunities for institutional investors to acquire significant positions.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 64.40% | 64.24% | 64.25% | +0.16% |
| FII | 2.04% | 2.13% | 2.05% | -0.09% |
| Mutual Fund | 0.20% | 0.20% | 0.14% | 0.00% |
| Other DII | 0.00% | 0.29% | 0.81% | -0.29% |
| Non-Institutional | 33.36% | 33.14% | 32.75% | +0.22% |
Foreign institutional investor holdings declined marginally to 2.04% in September 2025 from 2.13% in the previous quarter, whilst mutual fund holdings remained stagnant at 0.20%. More concerning is the complete exit of other domestic institutional investors, whose stake fell from 0.29% to zero during the quarter. This institutional exodus, whilst small in absolute terms, signals limited conviction from professional investors who typically conduct rigorous due diligence.
The non-institutional shareholding of 33.36% comprises primarily retail investors and high-net-worth individuals. The absence of meaningful insurance company holdings and minimal mutual fund participation (just one fund holds the stock) reflects the company's small-cap status and limited liquidity. Total institutional holdings of just 2.25% rank amongst the lowest in the sector, suggesting that Jindal Drilling remains largely undiscovered by mainstream institutional investors or has failed to meet their investment criteria regarding size, liquidity, or quality standards.
Stock Performance: Persistent Underperformance Across Timeframes
Jindal Drilling's stock performance presents a sobering picture of sustained underperformance across most relevant timeframes. Over the past year, the stock has declined 18.30% whilst the Sensex gained 5.94%, resulting in negative alpha of 24.24 percentage points. More troubling is the six-month return of -9.06% against the Sensex's 3.67% gain, and the year-to-date decline of 25.00% versus the benchmark's 6.81% advance. This persistent underperformance has eroded investor wealth and raises questions about the investment thesis.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +2.90% | -1.38% | +4.28% |
| 1 Month | -2.31% | +2.77% | -5.08% |
| 3 Months | -4.84% | +3.01% | -7.85% |
| 6 Months | -9.06% | +3.67% | -12.73% |
| YTD | -25.00% | +6.81% | -31.81% |
| 1 Year | -18.30% | +5.94% | -24.24% |
| 3 Years | +83.74% | +36.93% | +46.81% |
| 5 Years | +719.76% | +105.48% | +614.28% |
The stock's technical profile has deteriorated markedly. Currently in a "mildly bearish" trend since November 3, 2025, Jindal Drilling trades below all key moving averages—5-day (₹576.47), 20-day (₹572.49), 50-day (₹594.26), 100-day (₹611.25), and 200-day (₹693.56). This comprehensive breakdown of technical support levels indicates sustained selling pressure and lack of buying conviction. The stock's beta of 1.35 classifies it as a high-beta security, meaning it amplifies market movements and carries elevated volatility risk.
Comparing returns to the oil sector reveals even more pronounced underperformance. Whilst the broader oil sector gained 12.01% over the past year, Jindal Drilling declined 18.30%, resulting in sector underperformance of 30.31 percentage points. This suggests company-specific issues rather than sector-wide headwinds are responsible for the weak performance. The risk-adjusted return of -0.36 over one year, combined with volatility of 50.72%, places the stock in the "high risk, low return" category—an unfavourable combination for most investors.
"Jindal Drilling's valuation appears attractive on paper, but persistent underperformance, weak return on capital, and heavy reliance on non-operating income suggest the discount may be justified rather than an opportunity."
Investment Thesis: Navigating Mixed Signals
Constructing a coherent investment thesis for Jindal Drilling requires balancing several competing factors. The bull case rests on attractive valuation metrics, improving operational scale, conservative financial structure, and exposure to India's growing upstream oil and gas sector. The company's 27.55% five-year sales CAGR and 60.57% EBIT growth demonstrate the business is scaling successfully, whilst the net cash position provides financial flexibility and downside protection.
However, the bear case centres on persistently weak return on capital, disproportionate reliance on non-operating income, lack of institutional interest, and deteriorating technical momentum. The average ROCE of 6.24% and ROE of 6.18% over five years indicate the company has historically destroyed rather than created shareholder value. The quality of earnings remains questionable given that other income constitutes such a large portion of profitability, raising sustainability concerns about reported margins and profits.
The recent aggressive capital expenditure programme—fixed assets more than doubled to ₹1,284.59 crores in March 2025—represents a pivotal juncture. If these investments generate adequate returns and the company successfully reduces its reliance on other income, the current valuation discount could narrow significantly. Conversely, if return on invested capital remains anaemic and operational profitability disappoints, the stock could remain trapped in value territory indefinitely.
Key Strengths & Risk Factors
✅ KEY STRENGTHS
- Robust Revenue Growth: 27.55% five-year sales CAGR and 48.61% YoY growth in Q2 FY26 demonstrate strong demand for drilling services
- Margin Expansion: Operating margin of 42.04% in Q2 FY26, up from 22.54% year-ago, reflects improving operational leverage
- Conservative Financial Structure: Net cash position with debt-to-equity of -0.03 provides financial flexibility and downside protection
- Improving ROE: Return on equity of 13.59% in latest period shows enhanced capital efficiency versus historical averages
- Strong Interest Coverage: Operating profit to interest ratio of 43.87x provides substantial cushion against financial stress
- Attractive Valuation: P/E of 7.07x represents 56% discount to sector average, suggesting potential rerating opportunity
- Stable Promoter Base: 64.40% promoter holding with zero pledging indicates management confidence and alignment
⚠️ KEY CONCERNS
- Weak Historical Returns: Five-year average ROCE of 6.24% and ROE of 6.18% indicate poor capital efficiency and value destruction
- Other Income Dependency: Non-operating income constituting 62.88% of PBT in Q2 FY26 raises earnings quality concerns
- Persistent Underperformance: Stock down 18.30% over one year whilst Sensex gained 5.94%, with negative alpha across most timeframes
- Minimal Institutional Interest: Just 2.25% institutional holdings and exit by domestic institutions signals limited professional conviction
- Technical Weakness: Mildly bearish trend with stock trading below all key moving averages indicates sustained selling pressure
- Client Concentration Risk: Heavy reliance on ONGC for revenues limits diversification and pricing power
- High Volatility: Beta of 1.35 and 50.72% volatility classify stock as high-risk with amplified market movements
Outlook: What to Monitor Going Forward
The investment case for Jindal Drilling will be determined by the company's ability to address key concerns whilst capitalising on structural strengths. Investors should closely monitor quarterly trends in operating margins excluding other income, return on invested capital from recent capex, and client diversification efforts beyond ONGC. The company's capacity to reduce non-operating income as a percentage of total profitability will be critical in validating the sustainability of earnings.
📈 POSITIVE CATALYSTS
- Sustained operating margin above 35% excluding other income for three consecutive quarters
- Return on capital employed rising above 12% as new assets reach optimal utilisation
- Client diversification reducing ONGC concentration below 60% of revenues
- Institutional investor entry with meaningful stakes (above 5% combined)
- Technical trend reversal with stock reclaiming 200-day moving average
🚨 RED FLAGS TO WATCH
- Operating margins declining below 30% or other income exceeding 50% of PBT for two quarters
- Return on equity falling below 10% or ROCE remaining under 8% beyond FY26
- Further institutional exits or promoter stake dilution without clear strategic rationale
- Working capital deterioration with current ratio falling below 1.0x
- Stock breaking below ₹532 (52-week low) on sustained volume
The broader industry outlook for Indian oil services remains constructive given government focus on enhancing energy security and reducing import dependence. However, Jindal Drilling's ability to translate this tailwind into superior shareholder returns hinges on execution, capital allocation discipline, and demonstrating that recent investments can generate returns materially above the cost of capital. The company stands at an inflexion point where the next 12-18 months will likely determine whether the current valuation discount represents opportunity or value trap.
The Verdict: Cautious Optimism Warranted, But Proof Required
Score: 54/100
For Fresh Investors: Exercise patience and await evidence of sustained improvement in return metrics and earnings quality. The attractive valuation multiples are offset by legitimate concerns about capital efficiency and profitability sustainability. Consider initiating small positions only if operating margins stabilise above 35% and institutional interest materialises.
For Existing Holders: Maintain positions but avoid averaging down until the company demonstrates that recent capital investments are generating adequate returns. Set a mental exit if ROE falls below 10% or other income consistently exceeds 40% of PBT. The risk-reward remains balanced rather than compelling.
Fair Value Estimate: ₹650-700 (12-20% upside potential), contingent on sustained margin improvement and institutional recognition
Jindal Drilling's investment case rests on the company's ability to convert operational scale into genuine shareholder value creation—a transformation that remains incomplete despite encouraging topline momentum and margin expansion.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results, and all investments carry risk of loss.
