The quarterly loss represents an anomaly in an otherwise improving operational trajectory. On a nine-month basis for FY26, the company has delivered ₹733.70 crores in revenue, marking robust 25.86% year-on-year growth. However, the exceptional charge in Q3 has clouded the near-term outlook, with the stock now trading 51.84% below its 52-week high of ₹990.50 reached earlier in the year.
The company's drilling operations for ONGC continue to generate steady cash flows, but margin compression and the unexpected other income adjustment have raised questions about earnings quality and sustainability. With a current P/E ratio of just 5x and trading at 0.85x book value, the market is clearly pricing in significant uncertainty around future profitability.
| Quarter | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|---|
| Revenue (₹ Cr) | 241.58 | 238.03 | 254.09 | 245.01 | 239.46 | 172.50 | 170.98 |
| QoQ Growth | +1.49% | -6.32% | +3.71% | +2.32% | +38.82% | +0.89% | — |
| Net Profit (₹ Cr) | -33.39 | 132.52 | 66.11 | 71.61 | 65.95 | 34.47 | 43.86 |
| QoQ Growth | -125.20% | +100.45% | -7.68% | +8.58% | +91.33% | -21.41% | — |
| Operating Margin | 29.68% | 38.89% | 42.04% | 35.50% | 33.69% | 18.11% | 22.54% |
| PAT Margin | -13.82% | 55.67% | 26.02% | 29.23% | 27.54% | 19.98% | 25.65% |
Financial Performance: Exceptional Charge Distorts Underlying Strength
In Q3 FY26, Jindal Drilling reported consolidated revenue of ₹241.58 crores, a modest 1.49% sequential increase from ₹238.03 crores in Q2 FY26. On a year-on-year basis, revenue growth was subdued at 0.89%, reflecting a challenging operating environment in the oil services sector. However, the nine-month revenue figure of ₹733.70 crores represents impressive 25.86% growth compared to the same period last year, indicating sustained demand for the company's drilling services.
The headline loss of ₹33.39 crores in Q3 FY26 was primarily driven by an exceptional ₹80.52 crores negative adjustment in other income, compared to a positive ₹109.02 crores contribution in Q2 FY26. This ₹189.54 crores swing in other income alone explains the profit collapse. Excluding this exceptional item, the underlying operational profit (PBDIT excluding other income) stood at ₹71.70 crores, down from ₹92.57 crores in Q2 FY26, representing a more manageable 22.56% quarter-on-quarter decline.
Operating margins (excluding other income) compressed significantly to 29.68% in Q3 FY26 from 38.89% in Q2 FY26, a decline of 921 basis points. This margin pressure reflects rising employee costs, which increased to ₹23.56 crores from ₹20.99 crores, and elevated depreciation charges of ₹37.80 crores. The PAT margin turned deeply negative at -13.82% compared to 55.67% in the previous quarter, though this metric is heavily distorted by the exceptional charge.
On an annual basis for FY25, the company had delivered strong performance with revenue of ₹827 crores (up 34.0% YoY) and net profit of ₹140 crores. The operating margin for the full year stood at a healthy 29.0%, demonstrating the company's ability to generate consistent operational returns. However, the current quarter's exceptional charge has disrupted this positive momentum.
Operational Challenges: Margin Compression and Earnings Volatility
Beneath the headline loss, Jindal Drilling faces genuine operational headwinds that warrant attention. The 921 basis point contraction in operating margins (excluding other income) from 38.89% to 29.68% signals cost pressures that extend beyond the exceptional charge. Employee costs rose 12.24% quarter-on-quarter to ₹23.56 crores, whilst depreciation remained elevated at ₹37.80 crores, reflecting the capital-intensive nature of offshore drilling operations.
The company's return on equity (ROE) stands at just 8.85% on an average basis, rising to 18.74% in the latest period, indicating moderate capital efficiency. Whilst the latest ROE of 18.74% demonstrates improving profitability, the longer-term average of 8.85% highlights historical challenges in generating adequate returns on shareholder capital. The return on capital employed (ROCE) tells a similar story, with an average of 7.65% rising to 15.69% in the most recent period. These metrics, whilst improving, remain below industry benchmarks for high-quality industrial companies.
⚠️ Earnings Quality Concerns
Key Issue: The ₹80.52 crores negative other income adjustment represents a significant red flag. Other income swung wildly from +₹109.02 crores in Q2 FY26 to -₹80.52 crores in Q3 FY26, a staggering ₹189.54 crores variance. Such volatility in non-operating income raises questions about earnings sustainability and the nature of these exceptional items.
Impact: The company's profit before tax (excluding other income) of ₹35.05 crores in Q3 FY26 was the lowest in recent quarters, indicating genuine operational pressure beyond the exceptional charge. Investors should demand clarity on the nature and recurrence probability of such adjustments.
On a positive note, the company maintains a robust balance sheet with minimal debt. The debt-to-equity ratio stood at just 0.07x in H1 FY26, the lowest level in recent history, and the company is effectively a net cash entity with an average net debt-to-equity of -0.17. This financial strength provides a cushion to navigate operational challenges and invest in growth opportunities without balance sheet strain.
Balance Sheet Strength: Fortress Financials Provide Strategic Flexibility
Jindal Drilling's balance sheet remains a key strength amidst operational turbulence. As of March 2025, shareholder funds stood at ₹1,588.20 crores, up from ₹1,362.21 crores in the previous year, reflecting retained earnings accumulation. Long-term debt declined to ₹69.33 crores from ₹132.33 crores, demonstrating disciplined capital allocation and debt reduction. The company's book value per share of ₹548.01 compares favourably to the current market price of ₹477.00, suggesting the stock trades at a 12.97% discount to book value.
Fixed assets increased substantially to ₹1,284.59 crores in FY25 from ₹541.64 crores in FY24, indicating significant capital investment in drilling rigs and infrastructure. This ₹742.95 crores increase in fixed assets positions the company for enhanced operational capacity, though it also explains the elevated depreciation charges currently impacting margins. Investments stood at ₹495.62 crores, whilst current assets of ₹952.21 crores provide adequate liquidity to fund working capital needs.
The company's EBIT-to-interest coverage ratio averaged a comfortable 10.96x, indicating strong debt servicing capability. Debt-to-EBITDA averaged just 1.85x, well below concerning levels, whilst the net cash position (net debt-to-equity of -0.17) eliminates refinancing risk. These metrics underscore the company's financial resilience, providing management with strategic optionality to weather the current earnings volatility.
| Balance Sheet Item | Mar'25 | Mar'24 | Mar'23 | Change (YoY) |
|---|---|---|---|---|
| Shareholder Funds | ₹1,588 Cr | ₹1,362 Cr | ₹1,309 Cr | +16.59% |
| Long-Term Debt | ₹69 Cr | ₹132 Cr | ₹80 Cr | -47.61% |
| Fixed Assets | ₹1,285 Cr | ₹542 Cr | ₹592 Cr | +137.11% |
| Current Assets | ₹952 Cr | ₹693 Cr | ₹537 Cr | +37.37% |
| Debt-to-Equity | 0.04x | 0.10x | 0.06x | -60% |
Industry Context: Oil Services Sector Faces Demand Headwinds
The oil services sector in India has experienced mixed fortunes over the past year, with exploration activity by ONGC—Jindal Drilling's primary client—remaining steady but not accelerating. Global oil prices have stabilised in the $70-85 per barrel range, providing adequate economics for domestic exploration but not triggering a major expansion in drilling activity. This tepid demand environment explains the modest 0.89% year-on-year revenue growth in Q3 FY26, despite the company's strong nine-month performance.
Jindal Drilling operates jack-up drilling rigs on lease to ONGC, with revenue visibility largely dependent on rig utilisation rates and day rates negotiated with the state-owned explorer. The company also provides mud-logging services, a complementary offering that diversifies revenue streams. However, the capital-intensive nature of offshore drilling requires continuous investment in rig maintenance and upgrades, contributing to the elevated depreciation and employee costs observed in recent quarters.
The seamless casing pipes manufacturing business, part of the company's original operations, provides additional revenue diversification. However, this segment faces competition from larger integrated steel players and contributes a smaller proportion of overall revenue compared to the drilling services business. The company's strategic focus remains on expanding drilling capacity and securing long-term contracts with ONGC to enhance revenue predictability.
| Company | Market Cap | P/E (TTM) | P/BV | ROE % | Debt/Equity |
|---|---|---|---|---|---|
| Jindal Drilling | ₹1,522 Cr | 4.53x | 0.85x | 8.85% | -0.17x |
| Prabha Energy | — | NA (Loss Making) | 5.02x | 0.0% | 0.32x |
| Hindustan Oil Exploration | — | 18.52x | 1.48x | 11.84% | 0.00x |
| Antelopus Selan | — | 30.77x | 3.47x | 7.84% | -0.24x |
| Dolphin Offshore | — | 33.56x | 5.88x | 10.20% | 0.53x |
| Panama Petrochem | — | 9.21x | 1.29x | 22.51% | -0.10x |
Compared to peers in the oil services sector, Jindal Drilling trades at the lowest P/E multiple of 4.53x and the lowest P/BV ratio of 0.85x, reflecting the market's concern about earnings volatility and modest profitability metrics. Whilst the company's ROE of 8.85% lags behind Panama Petrochem's impressive 22.51%, it remains competitive with other peers. The net cash balance sheet (negative debt-to-equity) provides a competitive advantage in terms of financial flexibility.
Valuation Analysis: Deep Discount Reflects Earnings Uncertainty
At the current price of ₹477.00, Jindal Drilling trades at a P/E (TTM) of just 4.53x, representing a significant discount to the broader market and even to oil sector peers. The P/BV ratio of 0.85x implies the market values the company's assets at a 15% discount to book value, unusual for a company with minimal debt and positive operating cash flows. The EV/EBITDA multiple of 3.34x and EV/EBIT of 5.21x further underscore the valuation discount.
The PEG ratio of 0.02x suggests the stock is dramatically undervalued relative to its five-year sales growth rate of 25.73% and EBIT growth of 55.05%. However, this metric must be viewed cautiously given the recent earnings volatility and margin compression. The dividend yield of just 0.19% (₹1 per share) reflects a conservative payout ratio of 2.83%, with management prioritising capital retention for growth investments.
The stock's valuation grade has been assessed as "Attractive" since October 2025, having oscillated between "Very Attractive" and "Attractive" through mid-2025. This assessment reflects the compelling valuation multiples offset by quality and earnings concerns. The 51.84% decline from the 52-week high of ₹990.50 to the current ₹477.00 has created a substantial valuation cushion, though investors must weigh this against execution risks and earnings volatility.
"At 4.53x trailing earnings and 0.85x book value, Jindal Drilling offers deep value, but investors must question whether this discount reflects genuine opportunity or structural earnings challenges."
Shareholding Pattern: Promoter Consolidation Amidst Institutional Exit
The shareholding pattern reveals notable changes in Q3 FY26, with promoter holding increasing to 66.44% from 64.40% in the previous quarter, a 2.04 percentage point increase. This consolidation suggests promoter confidence in the long-term prospects despite near-term earnings volatility. The promoter group, led by entities within the D P Jindal Group including Jindal Global Finance And Investment Ltd. (17.4%) and Sudha Apparels Limited (13.09%), maintains a commanding stake with zero pledging, eliminating governance concerns around promoter financing.
Foreign institutional investor (FII) holdings declined sharply to 0.85% in Q3 FY26 from 2.04% in Q2 FY26, a 1.19 percentage point reduction. This institutional exit coincides with the earnings disappointment and likely reflects concerns about near-term profitability. Mutual fund holdings fell to zero from 0.20%, whilst other domestic institutional investors (DIIs) also exited their 0.29% stake. The combined institutional holding of just 0.85% indicates limited institutional participation, which contributes to liquidity constraints and volatility.
| Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 66.44% | 64.40% | 64.24% | +2.04% |
| FII | 0.85% | 2.04% | 2.13% | -1.19% |
| Mutual Funds | 0.00% | 0.20% | 0.20% | -0.20% |
| Other DII | 0.00% | 0.00% | 0.29% | 0.00% |
| Non-Institutional | 32.71% | 33.36% | 33.14% | -0.65% |
Non-institutional holdings, representing retail and high-net-worth investors, declined marginally to 32.71% from 33.36%. The absence of insurance company holdings and minimal institutional participation suggests the stock remains under the radar of large institutional investors, potentially due to its small-cap status and recent earnings volatility. For the stock to attract sustained institutional interest, the company must demonstrate consistent profitability and margin stability over multiple quarters.
Stock Performance: Severe Underperformance Reflects Earnings Concerns
Jindal Drilling's stock has delivered deeply disappointing returns across all timeframes, with the one-year return standing at -42.85% compared to the Sensex's +6.84% gain, representing a staggering 49.69 percentage point underperformance. The stock has underperformed the broader oil sector by 58.56 percentage points over the past year, with the sector delivering +15.71% returns. This severe underperformance reflects not just the recent quarterly loss but sustained concerns about margin sustainability and earnings quality.
On a shorter-term basis, the stock declined 10.12% on the result announcement day, 9.20% over the past week, and 15.92% over the past month, significantly underperforming the Sensex across all these periods. The year-to-date performance of -17.33% compares unfavourably to the Sensex's -4.05% decline, indicating stock-specific concerns beyond broader market weakness. The six-month return of -23.19% suggests the market began pricing in operational challenges well before the Q3 earnings announcement.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | -10.12% | -0.70% | -9.42% |
| 1 Week | -9.20% | -0.65% | -8.55% |
| 1 Month | -15.92% | -3.46% | -12.46% |
| 3 Months | -17.78% | -3.80% | -13.98% |
| 6 Months | -23.19% | +0.53% | -23.72% |
| 1 Year | -42.85% | +6.84% | -49.69% |
| 2 Years | -39.78% | +13.66% | -53.44% |
| 3 Years | +81.88% | +37.82% | +44.06% |
| 5 Years | +478.48% | +76.66% | +401.82% |
Longer-term returns paint a more nuanced picture. The three-year return of +81.88% (alpha of +44.06% vs Sensex) and five-year return of +478.48% (alpha of +401.82%) demonstrate the stock's historical ability to generate substantial wealth during favourable cycles. However, the two-year return of -39.78% indicates the recent downturn has erased significant gains, with the stock now trading well below levels seen in early 2024.
From a technical perspective, the stock trades below all key moving averages—5-day (₹516.34), 20-day (₹534.32), 50-day (₹540.54), 100-day (₹562.95), and 200-day (₹604.10)—indicating sustained bearish momentum. The current price of ₹477.00 is just 1.06% above the 52-week low of ₹472.00, suggesting limited downside cushion. The stock's beta of 1.46 indicates higher volatility than the market, with a 47.95% annualised volatility classifying it as a high-risk investment.
Investment Thesis: Value Trap or Contrarian Opportunity?
The investment case for Jindal Drilling presents a classic value versus quality dilemma. On valuation metrics alone, the stock appears compellingly cheap at 4.53x trailing earnings and 0.85x book value, with an enterprise value-to-EBITDA multiple of just 3.34x. The net cash balance sheet, zero promoter pledging, and 25.73% five-year sales growth rate suggest fundamental strengths that could support a valuation re-rating.
However, quality metrics paint a more cautious picture. The average ROE of 8.85% and average ROCE of 7.65%, whilst improving in recent periods, indicate mediocre capital efficiency. The "Average" quality grade assigned by Mojo's proprietary assessment reflects concerns about long-term financial performance consistency. The recent margin compression, earnings volatility driven by exceptional items, and "Flat" financial trend in Q3 FY26 raise questions about operational execution.
The technical picture remains decidedly negative, with the stock in a "Mildly Bearish" trend and trading below all major moving averages. The severe underperformance versus both the market and the oil sector over the past year, combined with institutional exit and declining delivery volumes, suggests momentum remains firmly to the downside. The proprietary Mojo score of 45/100 and "SELL" rating reflects these mixed signals, with valuation attractiveness offset by quality concerns and negative technical momentum.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Fortress Balance Sheet: Net cash position with debt-to-equity of just 0.07x and zero promoter pledging provides financial flexibility
- Strong Revenue Growth: Nine-month revenue of ₹733.70 crores reflects 25.86% YoY growth, demonstrating demand for drilling services
- Compelling Valuation: Trading at 4.53x P/E and 0.85x P/BV represents significant discount to intrinsic value
- Strategic Assets: ₹742.95 crores investment in fixed assets during FY25 enhances operational capacity for future growth
- Promoter Confidence: Promoter holding increased to 66.44% in Q3 FY26, signalling long-term commitment
- Long-Term Track Record: Five-year returns of 478.48% demonstrate wealth creation capability during favourable cycles
- Client Stability: Long-standing relationship with ONGC provides revenue visibility and repeat business
⚠ KEY CONCERNS
- Earnings Volatility: ₹189.54 crores swing in other income between Q2 and Q3 raises serious earnings quality concerns
- Margin Compression: Operating margin declined 921 bps QoQ to 29.68%, indicating cost pressures and pricing challenges
- Weak Profitability Metrics: Average ROE of 8.85% and ROCE of 7.65% lag industry benchmarks for capital efficiency
- Institutional Exit: FII holdings fell from 2.04% to 0.85% and mutual funds exited completely, signalling loss of confidence
- Severe Underperformance: One-year return of -42.85% vs Sensex +6.84% reflects fundamental concerns beyond market weakness
- Technical Breakdown: Stock below all moving averages with mildly bearish trend and proximity to 52-week low
- Concentration Risk: Heavy dependence on ONGC contracts exposes company to single-client risk
Outlook: What to Watch in Coming Quarters
POSITIVE CATALYSTS
- Margin Stabilisation: Return to 35%+ operating margins would signal cost control and pricing power recovery
- Other Income Normalisation: Clarity on exceptional items and return to stable other income levels
- Contract Wins: New long-term drilling contracts with ONGC or other explorers to enhance revenue visibility
- Institutional Re-entry: Fresh FII or mutual fund buying would validate investment thesis and improve liquidity
- Technical Reversal: Move above 20-day MA (₹534) and 50-day MA (₹541) would signal trend change
RED FLAGS TO MONITOR
- Continued Margin Pressure: Operating margins below 25% would indicate structural profitability challenges
- Recurring Exceptional Items: Additional large swings in other income would confirm earnings quality issues
- Promoter Selling: Any reduction in 66.44% promoter stake would signal loss of confidence
- Client Concentration: Loss of ONGC contracts or material reduction in drilling activity
- Technical Breakdown: Break below ₹472 (52-week low) would open further downside to ₹400-425 levels
The coming quarters will be critical for Jindal Drilling to demonstrate that Q3 FY26 represents a one-time aberration rather than the beginning of sustained earnings deterioration. Management must provide transparent disclosure on the nature of the ₹80.52 crores exceptional charge and articulate a clear path to margin recovery. Investors should monitor quarterly results closely for evidence of operational stabilisation before considering fresh positions.
The Verdict: Avoid Until Earnings Clarity Emerges
Score: 45/100
For Fresh Investors: Avoid initiating positions despite attractive valuation multiples. The combination of severe earnings volatility, margin compression, institutional exit, and negative technical momentum creates excessive risk. Wait for at least two consecutive quarters of stable profitability and margin recovery before considering entry. The stock trades near 52-week lows, but further downside to ₹400-425 is possible if operational challenges persist.
For Existing Holders: Consider reducing positions on any technical bounce towards ₹500-520 levels. Whilst the net cash balance sheet provides downside protection, the earnings quality concerns and weak momentum argue for capital redeployment to higher-quality opportunities. Long-term holders with high conviction may hold through the volatility, but should closely monitor Q4 FY26 results for signs of stabilisation.
Fair Value Estimate: ₹550-600 (15-26% upside from current levels), conditional on return to stable 30%+ operating margins and elimination of exceptional charges. Current price of ₹477 offers limited margin of safety given execution risks.
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 does not guarantee future results. The views expressed are based on publicly available information as of January 29, 2026, and are subject to change.
