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com March 19, 2008

Index Take Five

Scrip Reco Date Reco Price CMP Target
w Grasim 30-Aug-04 1,119 2,595 3,853
w Stock Update >> Alphageo India w ITC 12-Aug-04 69 187 247

w Sector Update >> Real estate

w L&T 18-Feb-08 3,536 2,839 4,428
w Maruti 23-Dec-03 360 823 1,230
w Ranbaxy 24-Dec-03 533 450 558

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investor’s eye stock update

Alphageo India Emerging Star

Stock Update

Price target revised to Rs480 Buy; CMP: Rs385

Company details Key points

Price target: Rs480

w Q3FY2008 results of Alphageo India (Alphageo) have been disappointing due to
foreclosure of one of its contracts and delay in the start of new contracts. The
Market cap: Rs193 cr revenues during the quarter declined by 18.7% year on year (yoy) to Rs10.7 crore.
52 week high/low: Rs1,078/208 w The company's order backlog at present is Rs65 crore including the two newly-
NSE volume: 7,409 bagged orders worth Rs42 crore during the current quarter. The company also has
(No of shares) a strong order pipeline with bids for contracts worth over Rs100 crore.
BSE code: 526397 w The company is planning to enhance its execution capabilities through organic
NSE code: ALPHAGEO as well as inorganic route from the proceeds of preferential allotment to its
promoters. The company is looking for overseas acquisition to add four-five
Sharekhan code: ALPHAGEO
crew to its team.
Free float: 0.34 cr
(No of shares) w At the current market price, the stock trades at 15.7x FY2008 and 8.8x FY2009
estimated earnings. We maintain our Buy recommendation on the stock with a
Shareholding pattern revised price target of Rs480 (11x FY2009 earnings).

Muted Q3FY2008 due to foreclosure of a contract

Promoters Q3FY2008 witnessed a muted performance by Alphageo on account of foreclosure of
Others
33% one of its contracts and delay in the start of new contracts. The revenues during the
43% quarter declined by 18.7% yoy to Rs10.7 crore from Rs13.2 crore during the
corresponding quarter last year. The contract with OIL India for seismic survey in
the North East region was foreclosed due to environmental concerns resulting into a
FII/Institutions
Non promoter revenue loss of around Rs5 crore. The company also suffered due to delay in the
12%
coporates start of two new orders during the quarter.
12%
On account of poor performance last quarter, the company would not be able to meet
the estimate targets during FY2008. Consequently, we are downgrading our FY2008
Price chart estimates to Rs24.5 per share (Rs33.3 per share) and FY2009 estimates to Rs43.6
per share (Rs53.6 per share).

1200
Order book at Rs65 crore
1000
Alphageo has bagged two new orders worth Rs42 crore during this quarter. In January
800
600 2008, the company got an order worth Rs37 crore from Adani group for 2D and 3D
400
200 Key financials
0
Particulars FY2006 FY2007 FY2008E FY2009E
Mar-07

Mar-08
Jun-07

Sep-07

Dec-07

Net profit (Rs cr) 4.2 7.5 13.5 24.0

Share in issue (cr) 0.5 0.5 0.6 0.6
EPS (Rs) 8.5 15.2 24.5 43.6
Price performance
% y-o-y growth 29.5 78.3 61.6 78.0
PER (x) 45.3 25.4 15.7 8.8
(%) 1m 3m 6m 12m Book value (Rs) 43.6 57.1 81.1 162.5
P/BV (x) 8.8 6.7 4.7 2.4
Absolute -32.0 -45.2 -0.5 103.1
EV/Ebidta (x) 19.4 8.5 6.3 3.6
Relative -17.2 -29.6 4.9 68.3 Dividend yield (%) 0.0 0.0 0.0 0.0
to Sensex RoCE (%) 24.0 28.1 38.2 48.1
RoNW (%) 21.0 30.1 37.0 35.8

Investor’s Eye 2 March 19, 2008 Home Next

investor’s eye
survey in two blocks in Assam and Gujarat. The second
order worth Rs5 crore is from Canoro Resources for 2D
survey. Including these orders, the company's order backlog
is Rs65 crore at present, which would be approximately
Rs55 crore by the end of FY2008. The 3D survey orders
form almost 80% of the current order book.
Strong order pipeline
Though the decline in the order backlog is bit concerning,
the company has a strong order pipeline with bids for
contracts worth over Rs100 crore. It is expected to finalise
some of these orders during the current quarter, which
would be very important for revenue growth visibility in
FY2009.
Stable revenue growth visibility
Seismic survey has been made mandatory by the
government on all the oil blocks awarded through the New
Exploration Licensing Policy (NELP). So far only 6% of the
135 oil blocks awarded via NELP round V and round VI have
been surveyed . 55 more blocks have now been added for
exploration in round VII, the latest round of NELP. This
Investor’s Eye
stock update
would provide enough opportunity for the company to
register stable revenue growth going forward.
Growing through organic as well as inorganic route
Alphageo at present has two 2D crew and three 3D crew. To
this, the company plans to add another crew during the
year from the proceeds of the preferential allotment of
5.5 lakh warrants to the promoters at a premium of Rs419.6
per warrant. The company is also looking for overseas
acquisition to add four-five crew to its onshore seismic
survey team.
Valuations
At the current market price, the stock trades at 15.7x
FY2008 and 8.8x FY2009 estimated earnings. We maintain
our Buy recommendation on the stock with a revised price
target of Rs480 (11x FY2009 earnings).
The author doesn’t hold any investment in any of the companies
mentioned in the article.
3 March 19, 2008 Home Next
investor’s eye sector update

Real estate
Sector Update

BKC auction indicates realty slowdown

As per media reports, the Mumbai Metropolitan Region
Development Authority (MMRDA) had recently put five plots
on auctions in the G-Block of the Bandra-Kurla Complex,
comprising two commercial, two residential and a
clubhouse. Out of the these five plots, the authority only
managed to sell three plots for Rs1,322 crore. Of these
three plots, the authority sold one commercial plot,
spanning 24,000 square metre, to Jet Airways for Rs826
crore. This implies a selling price of approximately Rs32,000
per square feet (Rs314,467 per square metre) for the
commercial plot. This selling price is at a 31.7% discount
to the Wadhwa Builders' bid of Rs46,806 per square feet
(or Rs503,636 per square metre). It is also interesting to
note that Jet Airways was the sole bidder for the commercial
plot in the recent auction.
Metropolitan Region. Hence, we believe that the developers
will find it difficult to maintain the current prices owing to
the recent drop in the sales volume and the slowdown in
the IT/ITES sector. Therefore the developers could reduce
prices to boost sales volume.
Price targets and earnings estimates revised
downward
In view of the recent decline in the sales volume and the
poor response to the MMRDA auction, we believe property
prices could soften in the near term. Hence, we are revising
our assumptions for valuing the realty stocks under our
coverage. We are factoring a 5.0% property price correction
in FY2009, stable prices in FY2010 and a 5.0% growth rate
for selling prices thereafter for the stocks under coverage.

Price correction—most likely Orbit Corporation

Such a lukewarm response from the corporate houses and To factor in the property price correction expected in
developers to the recent MMRDA auction indicates there is FY2009 and FY2010, we are revising our earnings estimates
a lack of demand across verticals from the end users in downward by 25.2% for FY2009 and by 22.4% for FY2010.
the Mumbai region. This, in turn, shows that there is a We have also fine-tuned our FY2008 earnings estimate.
possibility of a correction in the property prices in the Given its unique business model, we continue to value the
Mumbai region. stock using price to earning multiple and are rolling over
our target multiple to the FY2010 earnings estimate. We
We had also highlighted in our last Sector Update report have revised our price target to Rs852. We maintain our
dated March 12, 2008 that the outlook for the information Buy recommendation on the stock.
technology (IT)/IT enabled services (ITES) sector, a major
demand driver for the real estate sector, remains hazy. Key financial
Since the IT/ITES sector alone drives almost 75.0% to 80.0% Particular FY2007 FY2008E FY2009E FY2010E
of the demand for the commercial space and about 30% to Net profit (Rs cr) 57.3 224.2 261.0 351.8
40% demand for the residential space, we believe the No of shares (cr) 2.7 4.5 4.5 4.5
slowdown in the IT/ITES sector would lead to the deferring EPS (Rs) 21.1 49.4 57.5 77.5
of commercial space requirement by the corporates and of y-o-y growth rate 134.5 16.4 34.8
residential space requirement by the employees in the IT/ PER(x) 33.5 14.3 12.3 9.1
ITES sector. Price/BV(x) 6.3 5.9 4.5 3.0
EV/EBITDA(x) 30.7 6.9 6.4 4.5
Although the developers have maintained the selling price RoCE(%) 25.1 39.9 30.2 32.7
for their projects, there has been a significant slowdown RoNW(%) 28.2 51.4 36.9 33.2
in the sales volume in the recent past. There has been
approximately a 50.0% year-on-year slowdown in the sales Mahindra Lifespace
volume in the National Capital Region. Besides, a slowdown To factor in the property price correction in FY2009 and
has also been witnessed in the Tier II and Tier III cities. FY2010, we are revising our earnings estimates downward
The lukewarm response to the recent MMRDA auction also by 18.6% for FY2009 and by 26.9% for FY2010. We continue
indicates that there is a lack of demand in the Mumbai to value the stock using the sum-of-parts-valuation method.

Investor’s Eye 4 March 19, 2008 Home Next

investor’s eye sector update

After factoring the property price correction, we value Key financial

Mahindra Lifespace's Chennai and Jaipur SEZs and the other Particular FY2007 FY2008E FY2009E FY2010E
planned developments at 1.0x of the revised net asset value Adj net profit (Rs cr) 17.9 38.8 113.5 282.9
of Rs805 per share. The remaining land on which the No of shares (crore) 4.1 4.1 4.1 4.1
company does not have any development plans in the short EPS (Rs) 4.4 9.5 27.8 69.2
to medium term is valued at Rs30 per share. We maintain y-o-y growth rate 116.3 192.9 149.2
Buy recommendation on the stock with a revised price target PER(x) 87.3 40.4 13.8 5.5
of Rs835. Price/BV(x) 20.0 1.9 1.6 1.3
EV/EBITDA(x) 56.8 26.8 8.3 2.4
RoCE(%) 3.0 4.5 11.7 24.1
RoNW(%) 2.3 4.6 11.8 22.8

The author doesn’t hold any investment in any of the companies mentioned in the article.

Investor’s Eye 5 March 19, 2008 Home Next

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