Stock Idea - Alphageo India

Recommendation: Buy

CMP = Rs 416 (as of Monday)

Price target: Rs 517

 

Key points

·         In FY2007, Alphageo India’s (Alphageo) revenues increased by around 128% year on year (yoy) to Rs 54.3 crore. The operating profit rose by 128% yoy to Rs 25.5 crore as compared with Rs 11.2 crore in FY2006. However, the operating profit margin (OPM) remained almost flat at 46.9% in FY2007. The net profit grew at 78.3% yoy to Rs 7.5 crore.

·         The company witnessed a significant improvement in its project mix in FY2007, where the 3D projects made up around 77% of the total revenues as compared with around 44% in FY2006.

·         The company's order book as on April 30, 2007 stood at Rs 117.1 crore, which is around 70% higher than that of Rs68.8 crore on April 30, 2006. Around 85% of the company's current order book comprises of 3D projects.

·         During the year, the company received a Rs 58.4 crore contract from ONGC in the operational blocks of the Cauvery basin, Tamil Nadu. The contract will reduce company's excessive dependence on non-monsoon assignments. The Company added one more 3D crew in FY2007. The crew strength of the company now stands at five of which three are 3D crew and two are 2D crew.

·         Alphageo is the largest private sector player with five crew (three 3D crew and two 2D crew) in operation for 2D and 3D seismic services. The company is well versed with almost all the terrains in the country, which makes the company one of the most experienced (private sector) players in the country to take the advantage of the ongoing boom in oil and gas exploration in the country.

·         At the current market price of Rs 416, the stock discounts its FY2009E earnings by 8.0x and is available at enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.0x.

·         I maintain Buy recommendation on the stock with a price target of Rs 517.