Alphageo - Creating Seismic Waves

Stock Opportunities
21

@raj1968 -

Sorry for being little late in summarizing my questions for AGM due to some unexpected personal reasons. Some of the pointers that I want to be clarified via AGM are:

  1. For now, entire story is revolving around the ONGC order worth 1482 CR for ~27000 LKM 2D Survey. Want to be doubly sure that there are no lurking surprises in the story. Where exactly is the Quippo vs. ONGC litigation? HC order was in favor of Quippo. Did ONGC filed any appeal challenging the same in SC. What is the outcome of the case, if at all filed. Is the outcome awaited (will add to uncertainty). Is there a possibility of re-bidding if ONGC has not filed any appeal (seems unlikely). In either of the cases, I have an environment of uncertainty. (unfortunately not much of info available on net around Quippor case, not even on SREI site) :sweat:
  1. By all means, the plate is full for management. At this juncture are seating with 20X order of FY16 top line. By management own admission this single order is > cumulative past 10 years of order book, phew!!! On top of that, very tight timeline. To be delivered by Mid 2019. Other dimension, (what I understand by reading past ARs) is that this 2D survey is intricate affair, may not be carried out throughout the year. Also, during one of the press conference the management indicated that they will go entirely solo, will not have any revenue sharing partnership etc.

keeping all the enthusiasm aside, in certain terms and in a well chalked out manner, how the company going to deliver on this.

  1. Required/planned CAPEX of ~100 Cr to meet the new orders. Current long term liability is ~2 Crore. Cash flow from operating activity is ~3.54 CR and from investing activity is ~10.25 Crore for Fy16. All added together falls way short of the required CAPEX thing.

Management has indicated of long term loan and some bit of equity dilution. now the key question to understand is (had raised the same during my previous post), how much of stress this ~100 Cr long term loan will add to BS considering that their current BS size is ~125 Crores. Talking about equity dilution, current share outstanding is 56,34,767 equity share of Rs 10 each aggregating to ~5.64 Cr. only. A sizable equity dilution will have sever impact to EPS considering the low base of outstanding shares.

I understand those are not the pointed direct questions and not sure even in AGM set-up you will have time and liberty to discuss all of this in details. But surely some vibes can be captured around these areas.

Hope you will capture all relevant info even outside of the above questioner. Please do share that for benefit of others

Again, appreciate your effort on this @raj1968.

Thanks,

3 Likes
22

1 29-Sep-2016 RELAN AJAY B NSE 40000 1,054.73
2 29-Sep-2016 VD ENTERPRISES PRIVATE LIMITED S NSE 30000 1,055.02
3 27-Sep-2016 ALCHEMY INDIA LONG TERM FUND LIMITED B BSE 100000 974.99
4 27-Sep-2016 ALLA DINESH HUF S BSE 175000 979.65

BTW Ajay Relan of CX Partners has bought the stock yesterday. He is ex head of CVC and also had picked MPS as solid buy quite early at Rs186 http://rakesh-jhunjhunwala.in/ajay-relans-stock-pick-mps-gives-60-gain-but-is-still-a-great-buy/

23

Can somebody update on the AGM?

24

My sincere apologies for the delay in updates as was a little unwell.

First of all QUIPPO case is closed. After that only ONGC order was issued. - This was a major concern for many, so there are no legal hurdles going forward.

AGM Q&A:

Financials:

  1. As per management interview on CNBC the total capex needed is 100Cr to execute the large ONGC order. How is the funding being planned and how much of it is tied up?

Ans: 70Cr will be debt and 30cr will be promoter funding (Promoter brought in money by preferential allotment late last year). Please note that this loan will be cleared by the time ONGC order execution is over.

2.How much additional working capital requirement do we have for such larger execution?

Ans: They are negotiating with banks for a term loan of 70cr plus some additional limits. Interest rates still being discussed. It can be roughly around 13%.

3.Equity Dilution: Do we still have plans to issue additional equity or it’s going to be debt only?

Ans: No immediate plans for QIP. However, if new orders do come then this option may be looked at.

4.ONGC order is a huge game changing order for the company. Did we compromise significantly on the margins to win this order or it’s around our historical margins only?

Ans: The historical EBIDTA margins for the company have been 30-35%. However, due to the size of the order company has decided to reduce it. It will be of the order of 25-27%.

Ramp up:

1.As per AR of FY14 company owned 5 crews. Now he there is a need to have 10 crews. How is
the ramp up proceeding? How difficult it is to double the scale so quickly?

Ans: Equipment has been ordered already. Crew is also being added including foreign crew.

2.AR of FY16 mentions that foreign crews will be added to execute the ONGC project. Is it going smooth as planned or there are some challenges? Also, will there be a significant rise in expenses due to foreign crew?

Ans: There is an availability of global crew at much cheaper rates due to subdued condition in global seismic markets. The crew is available at even slightly lower cost that was factored in.

New Orders:

  1. I understand OIL tender (NSP) is expected to open up in October. It seems there are four bidders. Do you see the competitive intensity increasing for future orders?

Ans: They will not be bidding for new orders till Dec ’16.They wish to stabilize the execution of the large order first. They would review the situation later and then decide when to bid for new orders.

2.Any new order overseas?

Ans: Currently Myanmar is the only country for global. However, after this ONGC order execution, company will be in a position to bid for global orders.

3.Do we have any plans to foray in offshore seismic survey?

Ans: There are no plans to enter into offshore but there are plans to enter into shallow water area.

Related Party Orders:

  1. Aquila Drilling Private Limited - Company owned by A Rajesh (Non Executive Director) has been getting a significant part of order for drilling and survey for last several years. Any reason?

Ans: This Company is specialized in mountain drilling. Most of the times they were the single vendor for such a specialized job.

Some other sound bytes:

  1. Company is very lean. There are only 119 permanent employees. They will scale it up to 140.

  2. Alphageo got 27000LKM while a Russian company got 9000LKM order out of the ONGC order.

  3. ONGC contract revenues to be linear over next 3 yrs.

  4. OALP(Open Acreage Licensing Policy) is coming in 2019 and will allow companies to bid anytime during the year.
    OALP Basics

Overall I was very impressed by the management. Mr. Dinesh Alla was very open and patient in answering all the question. it seems he is very pragmatic person and is well aware of challenges of such a larger order. Overall my confidence has moved few notches after talking to him.

@bandlab1 please do add if I have missed anything.

Disc: Alphageo forms more than 10% of my portfolio. No buy/sell in last 90 days.

13 Likes
25

Any estimates what kind of PAT we are looking at over next 3 years

26

@vnktshb - if I recall correctly, on base business they had ~30℅ EBIDTA and ~10-12℅ PAT. Also recall that in one of the QnA (possibly available on co. Website) the have indicated few points lower projection considering aggressive bidding.

27

Thanks @raj1968 for the detailed write-up. Have capture major pertinent questions. Will chew over it over the weekend and will come back with foll-up, if any.

Thanks again!!!

28

Thanks for your update .I am wondering that why Dinesh Alla(HUF) sold around 3 % of promoter holding (on 27/9 , 2 days before AGM)!!

Good part is lot of institutional buying on this counter

Discl :I was heavily invested in Alphageo ,trimmed down a bit because of the above promoter sell news

1 Like
29

@DEBASHISH
"During the year, the Company issued 730,000 warrants to the Promoter Group at an issue price of 513.62 per warrant on payment of 937 lakh representing 25% of total issue price of the warrants allotted. Each warrant will be converted into one equity share of 10/- each fully paid at a premium of 503.62 per share on payment of balance amount of the issue price."

This is from AR FY16. Promoter sold 1,99,000 shares while they are getting 7,30,000 shares. So eventually their stake is going up. My guess is that they might have sold to fund the next payments towards the warrants …hence I don’t see a big deal here.

Regards,
Raj
Disc: Alphageo forms more than 10% of my portfolio and no buy/sell in last 90 days.

4 Likes
30

Related info around new HELP policy. My preliminary conclusion is that at least tailwind is there now.

Dis:
1- approx 5℅ of current PF. Transaction in last 30days.

1 Like
31

@ Raj -Thanks for your reply .I am aware of the warrants issue.What you are saying (fund the warrant) could be a right guess -but if the promoters knows that the profit and the valuation is going to triple in 3-5 years why they should dilute ,could have taken a loan also .Anyway hope you are correct and we all gain !

1 Like
32

Page promoters kept selling in small tranches and stock became a 20 bagger in next 5 years. Anyway let us see if see if there are further selling.

Regards,
Raj

1 Like
33

A veteran buys into alphageo.

1 Like
34

For now not impacting Alpha directly, however seems that auction of 64 small blocks is not getting due response.

35
1 Like
36

Q2 Results of Alphageo.

Notes are more important to read as Q2 traditionally have zero or minimal revenue always. Seems the mobilization for the big order is complete now. We should see the major ramp up on revenue from Q3.

1 Like
37

Now HDFC started covering alphageo. It’s a good read barring numbers which have some mistakes in the first table.

HDFC Report

2 Likes
38

Not sure if my system is acting up, not able to open the HDFC link. @raj1968 - can you pls repost the link.

Thanks in advance.

39

http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3020462&ct=ga&cd=CAEYACoUMTgwNDc0NjI1MDY5MTM5Njk5NjUyHDg4MjBiM2FkYmVlMmExMzQ6Y28uaW46ZW46SU4&usg=AFQjCNHAsyTYGC6R0c6O0uDSJ76UFEP8mA

40

agree to this observation Raj. Report author has done a decent job in deciphering the policy development and drawing implications out of that, however, financial numbers are not in sync. Page #2 (table 1) is really off on so many places. Page #11, table 2 (P&L) also seems inconsistent at places. Further, this report is projecting a top line for FY17 + FY18 = ~690 Cr. however from the ONGC order we know that by mid FY19 they have to complete total order worth 1400 Cr. Dont think that they will book remaining revenue of ~700 Cr in H1FY19. Part of this will come within FY17/18.

Thanks,

Disc:

  1. Invested, approx 5% of PF
  2. No transaction in last 3/4 months.