Monday, December 1, 2008

ALPHAGEO India: On Shaky Ground

ALPHAGEO India, one of the largest onshore seismic service providers in the private sector, recently obtained a Rs 43.7-crore contract from ONGC to provide seismic data in Nagaland over a period of one year. Considering the company’s FY08 net sales of Rs 82 crore, the current contract amounts to over half of its annual turnover.
Last year, the company obtained a 3D seismic data acquisition contract from Oil India in Assam and Arunachal Pradesh. However, one of the contracts had to be foreclosed due to operational constraints posed by socio-environmental problems. The company defaulted on the other contract, paying liquidated damages of Rs 2.6 crore. The company will complete these contracts during the current financial year. It has also obtained a contract from Naftogaz to gather 3D seismic data in the second half of FY09.
Since the company’s business is contract-based, there are significant fluctuations in its q-o-q earnings. During the first half of FY09, the company posted only 10% higher revenue at Rs 45 crore. Its net profit fell by 5% to Rs 8 crore due to a fall in operating margin and rise in depreciation.
The company’s operating margin has remained range-bound in the past between 46% and 50%. Its current market price of Rs 88.25 is below its book value and translates into a P/E of 3.7. Although the company operates in a rapidly growing industry with healthy order book position, its ability to complete contracts on time is not fully proven, making it unattractive for long-term investment.

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