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
