SECTOR FOCUS - OIL EXPLORATION AND ALLIED SERVICES ...

Generally price movement of most of the commodities in global markets are  closely linked with growth of economies.Some commodities  like oil are very sensitive and aggressively moving in tandem with global growth indicators.We have seen a sharp crash in Crude oil prices few years back when US  and European economies  were  in a fragile shape and a sharp recovery later even with very early signs of relief in US economy alone. If this is any indication,there is every chance for a spike in oil prices once there  is further improvement in US and some better feeling in EU.Since India is a large importer of  crude oil ,such a  situation may not be good for  Indian economy .But some sectors will benefit immensely from a situation like this. One of the major beneficiary  will be the firms providing services for oil exploration companies. I believe ,this is the time to look into such opportunities with a long term view.As many of you are aware, companies from such sectors under performed for the past 4 or 5 years.Due to this long period of recessionary situation in this industry , a good consolidation happened during this period and only the fittest are surviving now.Since existing players even find it difficult to keep their business afloat ,no major capacity addition happened during this period .Moreover ,adding additional capacity on short notice  is not possible in many cases in this industry.So , capacity constraints will help the remaining players to reap rich benefits once the industry turned around .Let us look into two such companies ,one in this week and another next week.

     1)    ALPHAGEO INDIA

Alphageo was a star during the last boom time of oil exploration Industry .Its stock price hits a high of Rs.1075 in 2008. Ace investors like Rakesh Jhunjunwala,Bharat Jayanthilal Patel,Ashish Kacholia ..etc were the share holders of this small company.( RJ and BJ still holding stake in it) .From the high of Rs.1000 + its share price crashed to sub Rs.20 level during June 2013 ,thanks to the  pathetic business performance during 2012-13 where it reported its worst ever sales during the last ten years.Due to sharp fall in crude prices and policy inaction of Indian Government ,activities in oil exploration sector were standstill  in our country and company could not clinch any major orders for it seismic data services.Man and machine kept idle for long period and promoters forced to bring additional capital by subscribing shares and warrants at a price of Rs.60 during August 2012, to keep the company afloat . As the proverb ‘Necessity is the mother of Invention’  company forced to look beyond India for opportunities which now seems clicked and giving a new lease of life for this company.

With the experience and credibility of India’s  largest inland integrated seismic services provider from the private sector ,for the first time ,Alphageo awarded Rs.75 Cr order from Myanmar ( Myanmar is a hot destination for OE now) by out bidding Chinese companies.Out of these, almost Rs.45 Cr orders will be executed in this FY itself. This is a big victory for the company and successful execution of these orders are expected to bring further business outside India .In the past ,Alphageo reported very good performance in timely execution and company having very good experience in working with tough terrains like Assam.Manipur,Meghalaya ..etc.In addition to this , with revival in major economies and thus increase in crude prices ,oil exploration activities are heating  up all around the world. Recently company awarded an order for Rs.17 Cr from Oil India for 3D Seismic data acquisition.

 In another  important development ,India Government is planning to launch the 10th round of auction of oil and gas blocks in next January. Government is expected to auction as much as 68 blocks this time.Since there is good improvement in oil prices over the past few months  NELP 10 is expected to attract more investors this time. Oil minister recently mentioned as  “Having learnt some lesson from 1 to 9 rounds (of NELP), 10th round will be a perfect round,” the Minister said adding hindrances faced in the previous rounds would be removed.  Any effort to remove delay in decisions and avoid red tape will attract more investors and more activity in this sector ultimately create more business opportunities  for companies like Alphageo.

  

I hope ,this is the time of revival in this industry both in India and all over the world and also the beginning of a new cycle. Promoters are taking every steps to improve the business and even during this tough business environment they recently spend Rs.13 Crore for technology up gradation to keep the company accessible for most modern technology in Seismic Data acquisition and analysis. This is a high margin niche business and the effect of available orders will be visible in its bottom line from here on .With revival in US and some signs of revival in EU ,oil exploration is a sector to keep in your radar and Alphageo may emerge as a winner from this space.Company offering good chance for appreciation in medium to long term.Stock listed both in NSE and BSE and trading around Rs.38


Link to Company website HERE


Link to  Latest annual Report HERE


Disc : Holding shares of Alphageo