Alphageo India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs214
Current market price: Rs150
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Key points
- Order wins improve growth visibility: Alphageo India (Alphageo) has recently bagged orders worth Rs32 crore and has built a healthy pipeline of orders that is likely to bring in additional orders of around Rs30-35 crore. The company also has an option to accept a Rs20-crore low-margin order from Oil India. Consequently, the revenue growth visibility for the next fiscal (FY2008) has improved considerably. Moreover, one of the orders is from Rajasthan (as against the current concentration of order backlog from the North-East region), which should help in mitigating the seasonality pattern resulting from the closure of operations during the monsoon season in the North-East region.
- Growth to be funded through equity dilution: The huge capital investment required to support the estimated exponential growth in revenues is likely to be partially funded by dilution of equity. The company is expected to raise around Rs15 crore through a preferential issue of shares/warrants to promoters and/or institutional investors. The issue is estimated to result in 22% dilution of its equity base.
- Re-initiating coverage: We are re-initiating coverage on Alphageo as the visibility of its revenue growth has improved considerably on the back of the recent order wins and the healthy order pipeline. Consequently, we recommend a Buy call on the stock with a price target of Rs214 (10x its FY2008 estimated earnings per share on a diluted equity base).