Rating Rationale
November 30, 2021 | Mumbai
Alphageo (India) Limited
Rating outlook revised to 'Stable'; Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.124.8 Crore
Long Term RatingCRISIL BBB+/Stable (Outlook revised from 'Negative'; rating reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has revised the outlook on the long-term bank facilities of Alphageo (India) Ltd (AIL; part of the Alphageo group) to ‘Stable’ from ‘Negative’ and reaffirmed the ‘CRISIL BBB+’ rating and has reaffirmed its ‘CRISIL A2’ rating on the short-term facility.

 

The outlook revision reflects the expectation that the Alphageo group will sustain its improved performance. The operating margin was better than expected at 23.7% in fiscal 2021 (up from 7.2% in fiscal 2020) aided by improved performance in the last two quarters of the fiscal and recognition of performance guarantee receivable of Rs 18.88 crore from a customer based on favourable order received. This resulted in increase in net cash accrual of Rs 33.7 crore in fiscal 2021 (up from Rs 7.3 crore in fiscal 2020). The performance remained healthy in the first half of fiscal 2022 as indicated by revenue of over Rs 82 crore and operating margin of 25.8%.

 

The rating action also factors in the group’s healthy financial risk profile driven by robust capital structure, healthy debt protection metrics and improved liquidity. However order flow and efficient execution of orders along with timely realisation of receivables will remain key monitorables. 

 

The ratings reflect the extensive experience of the group’s promoters and its established position in the onshore seismic survey services industry, and healthy financial risk profile. These strengths are partially offset by seasonality in operations, volatility in cash flow, and susceptibility to risks inherent in tender-driven business and to unfavourable government policies.

Analytical approach

CRISIL Ratings has combined the business and financial risk profiles of AIL and its subsidiaries, Alphageo International Ltd (Dubai), Alphageo DMCC (Dubai), Alphageo Marine Services Pvt Ltd, and Alphageo Offshore Services Pvt Ltd. This is because all these entities, collectively referred to as the Alphageo group, are in the same business and have common promoters.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key rating drivers and detailed description

Strengths:

  • Established market position: Alphageo group is the largest onshore seismic survey services provider for oil exploration and production companies in India, with a track record of almost three decades. Strong execution capability and adoption of the latest technology have ensured constant flow of orders. Healthy relationship with key clients such as Oil and Natural Gas Corporation Ltd and Oil India Ltd will continue to support the business.

 

  • Healthy financial risk profile: Networth is expected to be large at Rs 273 crore and capital structure strong because of NIL debt as of March 31, 2022. Debt protection metrics, too, are likely to be robust, with interest coverage and net cash accrual to total debt ratios expected at 29.7 times and 901 times, respectively, in fiscal 2022.

 

Weaknesses:

  • Volatility in cash flow due to seasonal operations: The pace of seismic data acquisition slows down during monsoon as weather conditions impede the movement of labour, material and equipment, and affect the quality of data acquired. Hence, given these constraints, bulk of revenue is clocked in the first and last quarters of every fiscal, while the third quarter sees execution in small proportion. Such seasonality in operations leads to volatility in cash flow.

 

  • Susceptibility to risks inherent in tender-based operations and government policies: Despite moderate revenue visibility for the medium term, growth will remain dependent on the ability to win orders, government policies, and investment decisions. Any policy change or lower spending on exploration and production (probably due to lower crude prices) can impact revenue and profitability.

Liquidity: Adequate

Liquidity will remain adequate supported by expected net cash accrual of Rs 30-40 crore each in fiscals 2022 and 2023, given the negligible term debt obligation. Unencumbered cash and bank balance stood over Rs 60 crore as on September 30, 2021. Bank limit utilisation was almost nil over the 12 months through September 2021. 

Outlook: Stable

CRISIL Ratings believes the Alphageo group will continue to benefit from its established position in the seismic survey services industry aided by the extensive experience of its promoters.

Rating sensitivity factors

Upward factors:

  • Healthy order flow providing revenue visibility and efficient project execution resulting in sustained increase in revenue to over Rs 300 crore with continued healthy operating margin
  • Sustained improvement in return on capital employed to 16-18%.

 

Downward factors:

  • Decline in revenue and profitability resulting in sharp fall in net cash accrual
  • Any large, debt-funded capital expenditure or significant stretch in the working capital cycle or large cash outflow in the form of dividends impacting the financial risk profile and liquidity

About the Group

Incorporated in 1987, AIL is promoted by Mr Dinesh Alla and his family members and provides seismic-data acquisition and processing services to oil and gas exploration entities. The Hyderabad-based company is listed on the Bombay Stock Exchange and the National Stock Exchange. Alphageo International Ltd and Alphageo DMCC are based in Dubai and also undertake seismic survey activities.

 

Alphageo Marine Services Pvt Ltd was incorporated in October 2017 to provide marine or aerial geophysical survey services. However, the company has no operations currently.

 

Alphageo Offshore Services Pvt Ltd was incorporated in April 2018 to undertake offshore and transition zone geophysical services. This company, too, has no operations currently.

Key financial indicators

Particulars - Consolidated

Unit

2021

2020

Revenue

Rs crore

161.98

267.52

Profit after tax

Rs crore

6.44

(8.77)

PAT margin

%

4.0

(3.3)

Adjusted debt/adjusted networth

Times

0

0.1

Interest coverage

Times

20

8.7

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure: Details of instrument(s)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity level Rating assigned with outlook
NA Bank guarantee NA NA NA 55 NA CRISIL A2
NA Cash credit NA NA NA 25 NA CRISIL BBB+/Stable
NA Proposed Bank Guarantee facility NA NA NA 44.8 NA CRISIL A2

 

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Alphageo India Ltd

Full

Same business, common promoters, and financial and operational linkages

Alphageo International Ltd

Full

Subsidiary of Alphageo India Ltd, in the same business

Alphageo DMCC

Full

Stepdown subsidiary of Alphageo India Ltd, in the same business

Alphageo Marine Services Pvt Ltd

Full

Subsidiary of Alphageo India Ltd, in the same business

Alphageo Offshore Services Pvt Ltd

Full

Subsidiary of Alphageo India Ltd, in the same business

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 25.0 CRISIL BBB+/Stable   -- 18-08-20 CRISIL BBB+/Negative 01-11-19 CRISIL BBB+/Watch Developing 29-12-18 CRISIL BBB+/Stable CRISIL BBB/Positive
      --   -- 27-01-20 CRISIL BBB+/Stable 08-08-19 CRISIL BBB+/Watch Developing 28-09-18 CRISIL BBB+/Stable --
Non-Fund Based Facilities ST 99.8 CRISIL A2   -- 18-08-20 CRISIL A2 01-11-19 CRISIL A2/Watch Developing 29-12-18 CRISIL A2 CRISIL A3+
      --   -- 27-01-20 CRISIL A2 08-08-19 CRISIL A2/Watch Developing 28-09-18 CRISIL A2 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Bank Guarantee 33 CRISIL A2
Bank Guarantee 11.6 CRISIL A2
Bank Guarantee 10.4 CRISIL A2
Cash Credit 7.6 CRISIL BBB+/Stable
Cash Credit 8.4 CRISIL BBB+/Stable
Cash Credit 9 CRISIL BBB+/Stable
Proposed Bank Guarantee 44.8 CRISIL A2
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Upstream Oil and Gas Sector
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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