Reblog: Cochin Shipyard IPO Review

Cochin Shipyard Ltd. (CSL) is a PSU enjoying “Miniratna” status and the largest public sector shipyard in India in terms of dock capacity, as of March 31, 2015, according to the CRISIL Report. CSL caters to clients engaged in the defense sector in India and clients engaged in the commercial sector worldwide. In addition to shipbuilding and ship repair, it also offers marine engineering training. As of May 31, 2017, the company has two docks – dock number one, primarily used for ship repair (“Ship Repair Dock”) and dock number two, primarily used for shipbuilding (“Shipbuilding Dock”). CSL’s Ship Repair Dock is one of the largest in India and enables it to accommodate vessels with a maximum capacity of 125,000 DWT and Shipbuilding Dock can accommodate vessels with a maximum capacity of 110,000 DWT.

Now CSL is in the process of constructing a new dock, a ‘stepped’ dry dock (“Dry Dock”). This stepped dock will enable longer vessels to fill the length of the dock and wider, shorter vessels and rigs to be built or repaired at the wider part. It is also in the process of setting up an International Ship Repair Facility (“ISRF”), which includes setting up a shiplift and transfer system. In the last two decades, company has built and delivered vessels across broad classifications including bulk carriers, tankers, Platform Supply Vessels (“PSVs”), Anchor Handling Tug Supply vessels (“AHTSs”), launch barges, tugs, passenger vessels and Fast Patrol Vessels (“FPVs”). The company is currently building India’s first Indigenous Aircraft Carrier (“IAC”) for the Indian Navy. It has also grown ship repair operations and is the only commercial shipyard to have undertaken repair work of Indian Navy’s aircraft carriers, the INS Viraat and INS Vikramaditya.

To part finance setting up of new dry dock facility and an international ship repair facility along with general corpus fund needs, the company is coming out with a maiden IPO of 33984000 equity share of Rs.10 each via book building route with a price band of Rs. 424-432 to mobilize Rs. 1440.92 to Rs. 1468.11 crore (based on lower and upper price bands). The issue consists of fresh equity issue of 22656000 equity shares and 11328000 equity shares by an offer for sale. It has reserved 824000 equity shares for eligible employees. The issue opens for subscription on 01.08.17 and will close on 03.08.17. Minimum application is to be made for 30 shares and in multiples thereon, thereafter. The company is giving a discount of Rs. 21 per share to eligible employees and retail investors. Post allotment, shares will be listed on BSE and NSE. The company is diluting 25% shares based on post paid up equity capital. BRLMs to this issue are SBI Capital Markets Ltd, Edelweiss Financial Services Ltd and JM Financial Institutional Securities Ltd. Link Intime India Pvt Ltd is the registrar to the issue. Company’s entire equity is issued at par so far. Post issue its current paid up equity capital of Rs. 113.28 crore will stand enhanced to Rs. 135.94 crore.

On the performance front, the company has posted turnover/net profits of Rs.1660.45 cr. / Rs. 69.28 cr. (FY15), Rs. 2096.88 cr. / Rs. 291.75 cr. (FY16) and Rs. 2208.50 cr. / Rs. 312.18 cr. (FY17). Thus its top and bottom line have shown consistent growth. Last three year’s average EPS is Rs. 23.38 and for FY it is Rs. 27.56. Average RoNW for last three fiscals stands at 13.76%. If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of 18.80 plus and at a P/BV of 2.4. Listed peers are trading at a negative P/E thus this is the only company having proven and positive track record with dividend distribution. The company has orders on hands worth Rs. 2936 crore as on 31.03.17. CSL has associations with world leaders like Wartsila, GTT, Rolls Royce Marine. It has completed constructions of 20 FPVs for the Indian Costal Guard ahead of schedules. More that 72% revenue is coming from defence sector. Its foreign clients include NPCC, Clipper, Sigba etc. Company’s ship repairs revenues have grown at 25.5 CAGR from 2012 to 2016. CSL has lined up capex of Rs. 3000 crore for next four years.

ON BRLM’s front, the three BRLMs associated with the issues have handled 28 IPOs in past three years, out of which 5 issues closed below the issue price on listing date.

Conclusion: Investors may consider investment for medium to long term in this maiden IPO.

The original post is written by Dilip Davda, a SEBI registered Research Analyst and is available here.

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