Over the next few years, South West forayed into exploration projects that included advanced geophysical activities and geological reports along with drilling. This activity requires high level mapping done by geoscientists – South West has 20 of them. During the same period, the firm commenced drilling in Oman. By 2015, it had reached the significant milestone of completing 50 projects in India.

At the same time, it also submitted its first, detailed geological report for coal exploration. To date, South West has also entered water mapping to evaluate ground-water levels and quality. During this period, the firm entered into a joint venture in Oman and bought a 35 per cent equity in Alara Resources, LLC. At the same time, SWPE entered into 3D seismic data acquisition for oil and gas and minerals. The firm also entered oil and gas exploration using passive seismic tomography technology in 2020. 

Not only did it progress well on technology, but the firm saw some major projects coming its way. It was awarded an 11-year copper mining contract valued at $125 million through a joint venture in Oman where mining activities have commenced. In the last 16 years of its existence, SWPE has completed 110 projects for leading government and private organisations including marquee clients such as Vedanta, among others. It has completed more than 20 lakh metres of drilling, five lakh metres of geophysical logging, 464 kilometres of 3D seismic surveys and 350 lakh kilometres of 2D seismic surveys for the exploration of coal, mineral, oil and gas. 

Due to the quality of its offering, SWPE has been able to bag multiple orders from large overseas clients as well. The firm has seen repeat business from several offshore companies operating in India in the field of drilling and mining. “At SWPE, we ensure that we meet client-specific requirements, with execution and delivery a key factor for our growth. We want to enhance customer satisfaction and maintain consistency in the quality of our delivery,” says Piyush Jain, 40, JMD at SWPE. 

Different thinking 

With over 18 projects currently running, SWPE has also been able to cement its strategy of accelerating the usage of rigs. Currently, all its rigs are employed, which is a key factor in ensuring adequate utilisation of assets, and continuous growth in exploration activity even as the firm has been able to utilise its manpower in double-shifts.

“This has enabled us to lower the unit cost of production. We in fact, have multipurpose rigs that can be utilised for activities across the spectrum for different types of minerals, which despite the industry cycle, ensures robust asset utilisation,” adds Piyush talking about the transformation in the domestic exploration industry.

Initially, when SWPE started exploration activities, a large percentage of its workforce were from Australia. However, over time, SWPE has transitioned to a workforce that reflects domestic demographics. The firm has been able to train its people on the art of using its rigs efficiently and now boasts of a well-trained drilling crew of over 400 people from various walks of life across India, including drilling heads and geoscientists.

SWPE has also been paying top buck for domestic drillers, thus enhancing the skill levels of Indian workers. Employees like AS Siddaraju, who studied up to the 12th grade, have been working with SWPE since inception and drawing a package of over Rs12 lakh per annum with perks that include four months leave for a year of drilling service.

It’s a strategy that has enabled SWPE to have a highly skilled workforce as well as low costs of operations compared to the high costs of foreign manpower. The combination of high-quality rigs and a well-trained workforce ensures timely and high productivity for SWPE. 

“We have been proactively adapting to the latest technologies and constantly inducting the most advanced drilling rigs and associated equipment, including seismic data acquisition systems for coal, non-coal minerals, oil & gas exploration. At the same time, we have been able to deploy and utilise these resources on a pan-India basis. We also have highly motivated and trained manpower which ensures quality of output for all our clients,” says Piyush capitalising on the domestic drilling and exploration activity that is required to help bridge the mineral and energy supply gap.

India is a vast land that is rich in minerals, but mining activity has been underutilised. Exploration of minerals and mining is a key factor to ensure that the earth’s resources are utilised in the optimum possible manner, making the extraction of minerals a highly productive activity as against random mining. Further, with environmental considerations taking centre-stage, demand for exploration activity is becoming increasingly important to ensure that only those areas that have significant potential are mined, thus ensuring sustainability of natural resources. 

“There is significant potential in India’s mining sector, which will also have a bearing on the growth of the exploration sector. With new mining capacities in coal, ferrous, non-ferrous, precious metals and atomic minerals, there are significant opportunities for discoveries in mineral deposits. Also, concentrating on unconventional oil and gas like coal bed methane, shale gas and geothermal exploration, will enhance India’s energy resources in times ahead. It is expected that India’s infrastructure sector will witness significant growth over the next 5 years,” says Piyush. 

On the other hand, India’s strategic location also enables it to export ores to developed and Asian markets. India is a vast country manufacturing a variety of more than 100 metals and minerals across the spectrum. Besides, it has introduced 100 per cent FDI in the mining sector and exploration of metal and non-metal ores under the automatic route. With mining leases granted for the long duration of a minimum of 20 years going to 30, miners are also queuing up to better explore the mineral potential. 

Globally, resources are getting scarcer, which can be seen from rising commodity prices. Shortages of critical minerals and metals are becoming more palpable with the disruption in supply chains post the pandemic and the Ukraine situation. This means that India will need to increase its investments in mining activity, and exploration is going to be a natural beneficiary of this. All this means that SWPE will see an increase in exploration projects coming its way. 

Already, SWPE is currently working on 18 different projects across the country. It has already earned a reputation as the only full-fledged exploration service company in India with expertise, manpower, and equipment to provide end-to-end drilling, exploration and allied services. Due to its long-standing experience, its exploration service business should continue to grow at a decent clip of 20-25 per cent per annum over the medium term, generating good cash flows for its shareholders. 

Its niche capabilities of ably mixing its bouquet of exploration services across minerals, oil & gas, geothermal energy, 2D/3D seismic study and aquifer mapping in accordance with market cycles and needs, places SWPE on a sound footing among exploration companies. 

Turbocharged by mining 

But the future is likely to be even brighter. While the company has demonstrated high execution and growth in the past, it has undertaken a bigger project with high growth potential for its shareholders. Armed with a strong balance sheet, it is entering the lucrative business of mining for minerals to achieve its next phase of growth. It is more than likely that the company should be able to see a three-fold increase in revenues, amply aided by a strong margin expansion in the coming years. 

The reason? SWPE has won a bid to mine coal in Jharkhand. Already, SWPE has started mine development activities and plans to start coal production by FY2025. While the total cost of the project is estimated to be in the region of R400-450 crore, the firm will initially have a capital requirement of about R171 crore, after adjusting for the government’s royalty and revenue share, which will be funded through debt and internal accruals.

Avinash Gorakshakar, Head - Research, Profitmart Securities says: “SWPE has recently bought a coal block and is getting into mining and the sale of coal independently. This move sets the tone for future growth. On a capex of approximately R240 crore, it aims to generate about Rs700-800 crore in the top line from FY25-FY27, with EBITDA margins to the tune of 40-42 per cent. The company is bullish on this new undertaking, as despite the buzz around green energy, coal is likely to be in demand as the primary source of power generation for several years, backed by government support.”

According to Dinesh Agarwal, CFO at SWPE: “We expect continued movement in the core exploration service business and it is expected to grow at 20 per cent per annum over the near and medium term with healthy EBITDA margins. Add to that the fact that our order book position is also sturdy with an overall value of R245 crore as of now. Looking forward, with our entry into the coal mining business, we expect 2-3 times growth in top line and margin improvement.”

India has a vast reservoir of coal at 344 billion tons, while coal production is just 729 million tons. With the rise in demand for power generation, coal is the preferred source of energy due to its availability and affordability. On the other hand, the government is also increasingly concentrating on developing the coal sector, encouraging investments in exploration and mining with the aim of expanding coal production by 25-30 per cent in the coming years. 

“A large portion of India’s energy requirement comes from coal. Apart from that, coal supports industries such as cement fertiliser, alumina, sponge iron and steel. Its abundant availability in India and affordability means it will be a preferred source of energy for a long time. We believe our investment in the commercial coal mining block in Jharkhand spread over 266 hectares with geological reserves of around 84 million tonnes, should see a good payoff in the long run due to the ever-increasing demand for coal power,” says Vikas.

Along with this, SWPE’s copper mining JV in Oman is likely going to be lucrative for shareholders and has commenced mining operations. Due to its proportionate revenue share, the firm could see a net margin of 5 per cent post operating and other expenses, which should result in an expansion of Rs2-3 crore in the bottom line per annum.

“SWPE has set its footprint in Oman though a JV. We have successfully completed three drilling projects and have already started executing an 11-year mining contract for copper and gold under the JV. This will give us an immense opportunity to establish ourselves in the Gulf market where the mining sector has now opened up and has a great future,” adds Vikas

No doubt, in the last 16 years, SWPE’s balance sheet has gained in strength, slowly but steadily. Its revenue CAGR has been 11 per cent from FY18-FY22, while the firm has a very low debt-equity ratio of 0.5 times. Net profit has also been growing steadily even as the firm has maintained a return on capital employed of 13 per cent in the last 2 years. 

For the first quarter of FY23, its revenues expanded 8 per cent, while profit after tax gained 35 per cent y-o-y. With more projects coming its way, and a burgeoning order book of about Rs214 crore as on August 2022, the company’s revenue position seems assured for the next 2 years. SWPE has also participated in quite a few tenders and has recently won a big project from a mineral company. 

SWPE’s recent expansion in its mining business complements its exploration activity. In fact, the firm should be able to turn its Jharkhand operations into a commercial mine more quickly than other similar mines thanks to its head start and in-house exploration prowess. 

All this could not have been achieved without the company’s understanding of the market and its commitment to growth. “Creating an exploration to mining company has only been achievable through designing an efficient and quality operation at all levels. We will continue to improve our drilling operations and expertise across segments to meet demand while maintaining the versatility and durability of our operations to reach greater heights,” concludes Piyush.