Alphageo: A stockpicker’s delight

The search for that one stock that transforms a virtual beggar like me into a profligate millionaire might be over.

The company is Alphageo India Ltd, engaged for more than a quarter of a century in providing inland integrated seismic services for downstream oil exploration companies.

When oil majors need to discover oil, they need a trusted consultant to tell them where to drill. Alphageo is that trusted consultant; it analyses subterranean realities, generates data, interprets findings and goes back with geoseismic evidence to drive informed decision-making. Result: Alphageo enhances the capital efficiency of some of India’s largest oil companies.

For the past couple of decades, Alphageo was that service-driven nugget whose prospects you always discussed with the suffix “hopefully some day in the future”. Because, even as India needed more oil, the urgency seldom translated into a concerted national oil-seeking agenda.

Which is really the irony: India consumed more oil that only made some other country richer; India’s largest seismic survey company comprised a mere four crews (not enough to even get it past the global heats in school sports language).

Then the deluge.

The new Indian prime minister set a goal of reducing India’s dependence on imports for 77 per cent of its ‘energy’ requirements – down 10 per cent by 2022 and by 50 per cent by 2030.

I would have dismissed this as another grand-sounding hollowism, but for the fact that the Directorate General of Hydrocarbons embarked on an exercise to obtain fresh data of unsurveyed national pockets (estimated at around 50 per cent of India’s identified sedimentary basins) through a 2D-seismic survey.

This strategic clarity resulted in India announcing possibly the largest oil-finding programme in the world.

The big news, then, is that the ever-small Alphageo carved out the disproportionately large share of seismic orders. The company’s revenues in the five years leading to 2015-16 have been: Rs 46 crore, Rs 24 crore, Rs 96 crore, Rs 73 crore and Rs 90 crore. Contrast this with the fact that the company’s order book is now Rs 1,700 crore – and all of this to be liquidated by June 2019.

For a company whose big moment would have been getting to Rs 100 crore of annual revenues, the reality is that it can potentially report a top line six times that number starting this year; for a company needing to nurse four crews (and overheads) through the slowdown, the priority is to get to 18 in the next few months; for a company that would always apologetically say “we are the largest in India” without anyone caring a damn, Alphageo is possibly the largest seismic survey company in the world.

And, all of this on an equity capital of less than Rs 6 crore, virtually no debt and a projected Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of 35 per cent (my assumption).

Just the kind of company that will need to send a tranquiliser to shareholders with its next annual report.…

The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed

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Alphageo: A stockpicker’s delight

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