- GPL has a major stake (74%) from China-based Fosun Pharma.
- IPO constitutes 26.45% of the post issue paid-up equity.
- Issue appears fully priced based on P/E and P/BV parameters.
- The company has not paid any dividend in the last three fiscal.
- Negative sentiment for China connection globally raises major concern.
PREFACE:
Gland Pharma has been the talk of the town ever since it filed DRHP for its mega maiden float in pharma segment. It has a very interesting story of its existence. The company formed by PVN Raju in 1978 found a big stakeholder in the form of Fosun Pharma of China that acquired 74% stake in October 2017. Thereafter, the company marked tremendous growth in top and bottom line till FY20. However, ever since COVID-19 pandemic, China is facing a trade war and boycott from the world over and thus this company with major China stake is at the centre stage for the Indian capital market.
As we know not only the Government of India, but even countries like the US, UK, Germany, Japan have started cutting their business deals with China. As this process has been aggravated since April/May 2020, it would be of major concern for the future outlook of this pharma company. According to market circles, unless some big Indian or other multinational stakeholder jumps in to acquire the stake, it will be very difficult to presume the fate of this company in the near term.
In the past, we have seen pharma/healthcare sector IPOs of Eris Life (Rs. 1741.16 cr.), Alkem Lab (Rs. 1349.61 cr.), Laurus Lab (Rs. 1331.80 cr.), Metropolis (Rs. 1204.29 cr.), Aster DM (Rs. 980.14 cr.) and thus, this is the biggest ever IPO in pharma sector for Indian capital market history so far. So on this count too this IPO is a talk of the town.
It’s a known fact that over 80% raw material for pharma business is coming in India from China and it dominates this space globally. But in the present context of negative sentiment for China connections globally post COVID-19 pandemic, once again this IPO is drawing the attention of one and all in regard to responding it. This is indicative from the GMP as it started with a big bang even when formal pricing announcement was missing. And now that pricing announcement is made, it has witnessed a big slide in GMP quotes. If market circles to be believed, this IPO may see a re-run of SBI Card that created fancy before IPO and marked dull listing on debut day.
ABOUT COMPANY:
Gland Pharma Ltd. (GPL) is one of the fastest-growing generic injectables-focused companies by revenue in the United States from 2014 to 2019 (Source: IQVIA Report). It sells products primarily under a business to business (“B2B”) model in over 60 countries as of June 30, 2020, including the United States, Europe, Canada, Australia, India and the Rest of the world. The company has a consistent compliance track record with a range of regulatory regimes across these markets. It also has an extensive track record in complex injectables development, manufacturing and marketing and a close understanding of the related sophisticated scientific, technical and regulatory processes.
It has expanded from liquid parenterals to cover other elements of the injectables value chain, including contract development, own development, dossier preparation and filing, technology transfer and manufacturing across a range of delivery systems. Its promoter, Shanghai Fosun Pharma, is a global pharmaceutical major.
GPL is focused on meeting diverse injectables needs with a stable supply of affordable and high-quality products. It has established a portfolio of injectable products across various therapeutic areas and delivery systems. GPL is also present in sterile injectables, oncology and ophthalmics, and focus on complex injectables, NCE-1s, First-to-File products and 505(b) (2) filings. GPL’s delivery systems include liquid vials, lyophilized vials, pre-filled syringes, ampoules, bags and drops. The company is expanding development and manufacturing capabilities in complex injectables such as peptides, long-acting injectables, suspensions and hormonal products as well as new delivery systems such as pens and cartridges.
GPL is currently following the B2B segment and has up the sleeve B2C market as well. The company has seven manufacturing facilities in India, comprising four finished formulations facilities with a total of 22 production lines and three API facilities. As of June 30, 2020, it had manufacturing capacity for finished formulations of approximately 755 million units per annum.
As of June 30, 2020, it had a sales force of over 200 employees and an extensive countrywide distribution network to ensure coverage in approximately 2,000 corporate hospitals, nursing homes and Government facilities. On the same date, GPL had a workforce of 3766 excluding contract labourers.
As of June 30, 2020, the group had 267 ANDA filings in the United States, of which 215 were approved and 52 were pending approval. The 267 ANDA filings comprise 189 ANDA filings for sterile injectables, 50 for oncology and 26 for ophthalmics related products. Out of these 267 ANDA filings, 101 represent ANDAs owned by it, of which 71 ANDA filings are approved and 30 are pending approval. As of the same date, the group had a total of 1,427 product registrations, comprising 371 product registrations in the United States, Europe, Canada and Australia, 54 in India and 1002 in the Rest of the world.
ISSUE DETAILS / CAPITAL HISTORY:
To finance its needs of working capital (Rs. 769.50 cr.), capital Expenditure (Rs. 168.00 cr.), general corpus fund (SHALL NOT EXCEED 25% OF THE NET ISSUE PROCEEDS) GPL is coming out with a maiden IPO of combo offer of fresh equity issue (Rs. 1250.00 cr.) and offer for sale (Rs. xx cr.). It consists fresh equity issue of approx 8333335 shares of Re. 1 each (at the upper price band) and offer for sale of 34863635 shares. Thus the overall issue will be for approx. 43196970 equity shares. The issue opens for subscription on November 09, 2020, and will close on November 11, 2020. The company has fixed the price band of Rs. 1490 – Rs. 1500 per share. Minimum application is to be made for 10 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. GPL mulls mobilizing Rs. 6436.35 cr. – Rs. 6479.55 cr. (Based on lower and upper price bands) through this IPO. The issue constitutes 26.46% of the post issue paid-up capital of the company.
Having issued/converted initial equity at par, the company raised further equity in the price range of Rs. 2.50 to Rs. 48.69 between January 1996 and December 2007. The company also bought back shares in the price range of Rs. 139.81 – Rs. 344.81 between July 2014 and October 2017. It has also issued bonus shares in the ratio of 1 for 1 in February 1994, 1 for 2 in October 1994. (Based on FV of Re. 1 per share).
The average cost of acquisition of shares by the promoters/ other selling stakeholders is Rs. NIL, Rs. 30.12 and 605.12 per share. Post issue, GPL’s current paid-up equity capital of Rs. 15.50 cr. will stand enhanced to Rs. 16.33 cr. With this issue, the company is looking for a market cap of Rs. 24492.42 cr.
The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., Citigroup Global Markets India Pvt. Ltd., Haitong Securities India Pvt. Ltd. and Nomura Financial Advisory & Securities (India) Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, GPL has posted total income/net profits of Rs. 1671.68 cr. / Rs. 321.05 cr. (FY18), Rs. 2129.77 cr. / Rs. 451.86 cr. (FY19) and Rs. 2772.41 cr. / Rs. 772.86 cr. (FY20). For Q1 of FY21, it has posted a net profit of Rs. 313.90 cr. on a total income of Rs. 916.29 cr. Currently, around 67% revenue comes from exports to the US, and as known about US-China trade war imbroglio, added tension following Corona pandemic, it is difficult to assume the sustainability of this export business.
For the last three fiscals, GPL has posted an average EPS of Rs. 38.11 and an average RoNW of 18.08%. The issue is priced at a P/BV of 5.86 based on its NAV of Rs. 255.79 as on June 30, 2020, and at a P/BV of 4.70 based on post issue NAV of Rs. 319.29. (Based on upper price band).
GPL has posted CAGR of 27.38% in revenue, EBITDA of 36.90%, restated profits of 55.15% from fiscal 2018 to 2020. Its debt-equity ratio was 0.001 as on June 30, 2020.
For the last three fiscals, GPL has not declared any dividend payouts. (Refer page 185 of RHP).
If we attribute the latest earnings on a fully diluted equity post issue, then asking price is at a P/E of around 19.5. Based on FY20 performance, the asking price is at a P/E of 31.7. Thus prima facie issue is fully priced. The prime concern is the sustainability of Q1 performance in the present context of opposing China connected goods/technology/tie-ups/investments.
BRLM’s TRACK RECORD:
The four Book Running Lead Managers associated with this issue have handled 15 public issues in the past three years, out of which 5 issues closed below the issue price on listing date.
COMPARISION WITH LISTED PEERS:
As per offer documents, GPL has no listed peers to compare with.
Conclusion / Investment Strategy
No doubt that currently, the pharma sector is attracting investors following COVID-19 pandemic and the search of remedies for it globally. This company has posted good performance for the last three fiscals and spectacular numbers for Q1 of FY21, but will it sustain going forward is a major concern in the present context of negative sentiment for China connections globally. Based on P/BV and P/E parameters, the issue appears fully priced. Considering all these, though it sounds lucrative bet for the long term, risk savvy, cash surplus investors may consider investment at their own risk in this China connected IPO.
The original review is written by Dilip Davda and appears on Chittorgarh.com. It is available here.
Extending their gaining streak into the fifth straight session, the benchmark indices ended over 1 per cent higher on Friday, lifted mainly by index heavyweight Reliance Industries and financials. Further, firm global cues, too, boosted investor sentiment.
The S&P BSE Sensex added 553 points, or 1.34 per cent to settle at 41,893 levels and the Nifty50 index ended above the crucial 12,250 level at 12,264, up 143 points, or 1.18 per cent.
On a weekly basis, Sensex gained 5.75 per cent while Nifty added 5.33 per cent.
Reliance Industries today ended nearly 4 per cent higher at Rs 2,029 on the BSE after the conglomerate said that Saudi Arabia’s Public Investment Fund will invest Rs 9,555 crore for a 2.04 per cent equity stake in Reliance Retail.
In the broader market, the S&P BSE MidCap index rose 0.36 per cent while the S&P BSE SmallCap index ended 0.54 per cent higher.
On the sectoral front, Nifty Bank rallied 486 points, or 1.85 per cent to 26,799 levels while Nifty IT gained 0.5 per cent. Nifty Pharma, on the other hand, lost 0.7 per cent.
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The domestic benchmark indices ended Friday’s volatile session in the negative territory amid weak global cues.
Among headline indices, the S&P BSE Sensex ended 136 points or 0.34 percent lower at 39,614 levels and the broader Nifty50 index ended at 11,642, down 28 points, or 0.24 percent. Bharti Airtel (down 4 percent), Maruti (down over 2 percent), and HUL (down 2 percent) were the top Sensex drags. On the other hand, Tata Steel (up over 2 percent), and NTPC (up 2 percent) were the biggest gainers on the index.
Volatility index, India VIX, rose 3 percent to 24.7 levels.
Shares of Cholamandalam Investment rallied 15% in two days on strong Q2 results. The company’s profit after tax (PAT) increased 41 percent at Rs 432 crore on improvement in net income margin and lower operational expenses. It had posted a profit of Rs 307 crore in the corresponding quarter of the previous fiscal.
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A healthy buying in auto, technology, and select bank stocks helped benchmark indices settle in the green on Friday.
The S&P BSE Sensex settled 127 points, or 0.31 per cent higher at 40,686 levels while NSE’s Nifty ended at 11,930, up 34 points, or 0.28 per cent. The volatility index, India Vix, slipped over 3.5 per cent to 21.82 levels.
On a weekly basis, Sensex gained 1.75 per cent while Nifty added 1.42 per cent.
Auto major Maruti (up over 4 per cent) ended as the biggest gainer on Sensex while UltraTech Cement (down over 2 per cent) was the top loser.
The broader market continued to outperform frontline indices. The S&P BSE MidCap index gained 0.59 per cent while the S&P BSE SmallCap index rallied 0.7 per cent to 15,135 levels.
Among sectoral indices, Nifty Auto gained nearly 3 per cent to 8,095 levels.
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The domestic stock market regained some lost ground on Friday, a day after benchmark indices tumbled around 2.5 per cent. The S&P BSE Sensex ended 255 points, or 0.64 per cent higher at 39,983 levels, thanks to healthy buying in the financial counters. NSE’s Nifty ended at 11,762 levels, up 82 points, or 0.7 per cent. India VIX declined nearly 2 per cent to 21.64 levels.
In the broader market, the S&P BSE MidCap index gained 1 per cent to 14,621 points while the S&P BSE SmallCap index settled nearly 1 per cent higher at 14,787 levels.
Shares of IDBI Bank surged 18% on government stake sale plan report. The government currently owns a 47.11 per cent stake in IDBI Bank. In January 2019, Life Insurance Corporation (LIC) completed the acquisition of 51 per cent controlling stake in the lender. The state-owned life insurer infused Rs. 21,624 crore into the bank.
Shares of steel companies were in demand on Friday, rallying by up to 6 per cent on the BSE on the expectation of demand recovery. JSW Steel advanced 6 per cent to Rs 308, hitting a fresh 52-week high on the BSE. The stock surpassed its previous high of Rs 298 touched on October 9, 2020. Tata Steel, Jindal Steel and Power and Steel Authority of India (SAIL), on the other hand, were up 3 per cent to 6 per cent on the BSE.
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Continuing their gaining streak for the seventh session in a row, the benchmark indices ended nearly a per cent higher on Friday after the monetary policy committee (MPC) of the RBI left the repo rate unchanged at 4 per cent but announced a slew of liquidity measures to support the economy.
Further, RBI Governor Shaktikanta Das said the stance of the policy would remain “accommodative,” for “as long as necessary – at least during the current financial year and into the next year – to revive growth. READ MORE
The S&P BSE Sensex today ended 327 points, or 0.81 per cent higher at 40,509 levels while the Nifty50 index settled above the 11,900-mark at 11,914, up 80 points, or 0.67 per cent. On a weekly basis, Sensex rallied 4.6 per cent and Nifty gained 4.3 per cent.
ICICI Bank and Axis Bank (both up 3.64 per cent) were the top Sensex gainers, followed by SBI, and HDFC Bank (both up 3.5 per cent).
The Nifty sectoral indices were mixed. While Nifty Bank gained nearly 3 per cent to 23,847 levels, Nifty Pharma ended as the biggest loser – down over 1.3 per cent.
In the broader market, the S&P BSE MidCap index slipped 0.42 per cent while the S&P BSE SmallCap ended 0.29 per cent lower at 14,966 levels.
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The benchmark indices ended over 1.5 per cent higher on Thursday amid across-the-board buying.
Among headline indices, the S&P BSE Sensex ended 629 points, or 1.65 per cent higher at 38,697 levels while the Nifty50 index topped the 11,400-mark to settle at 11,417, up 1.5 per cent. The volatility index, India VIX, slipped nearly 6.5 per cent to 18.27 levels.
IndusInd Bank (up over 12 per cent) and Bajaj Finance (up over 5 per cent) were the top Sensex gainers, followed by Axis Bank, ICICI Bank, and Tech Mahindra (all up 4 per cent).
On a weekly basis, Sensex gained 3.4 per cent while Nifty added 3.3 per cent. The markets will remain closed on Friday (October 2) on account of Gandhi Jayanti.
The trend among Nifty sectoral indices was positive, led by Nifty Private Bank index, up over 4 per cent. The Nifty Bank index rallied 3.7 per cent to 22,246 levels.
In the broader market, the S&P BSE MidCap index ended 0.73 per cent higher at 14,813 levels while the S&P BSE SmallCap index ended at 14,970, up 0.69 per cent.
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- UTI AMC is the second-largest AMC with a track record of 55+ years.
- It is making a secondary offer for listing benefits and providing exit to existing stakeholders.
- Last three fiscals financial data has shown declining trends.
- Investors may consider an investment with a long term perspective.
PREFACE:
UTI AMC is the revamped version of UTI and is the second-largest AMC having 55+ years track record. With the adoption of new technologies and well-managed portfolio plans, it is gaining grounds. However, for the last three fiscals, it has seen inconsistency in financial performance which is attributed to certain provisioning as per guidelines of regulators. It is back on track with its FY21 Q1 performance claims management.
ABOUT COMPANY:
UTI Asset Management Company Ltd. (UTI AMC) is the second-largest asset management company in India in terms of Total AUM and the eighth largest asset management company in India in terms of mutual fund QAAUM as of June 30, 2020, according to CRISIL. As of June 30, 2020, it also had the largest share of monthly average AUM attributable to B30 cities of the top ten Indian asset management companies by QAAUM as of June 30, 2020, according to CRISIL. UTI AMC caters to a diverse group of individual and institutional investors through a wide variety of funds and services.
The company manages the domestic mutual funds of UTI Mutual Fund, provide portfolio management Services (“PMS”) to institutional clients and high net worth individuals (“HNIs”), and manage retirement funds, offshore funds and alternative investment funds. As of June 30, 2020, its total QAAUM for domestic mutual funds (“Domestic Mutual Fund QAAUM”) was Rs. 1,336.3 billion, while another AUM was Rs. 8,493.9 billion. With 10.9 million Live Folios as of March 31, 2020, its client base accounts for 12.2% of the approximately 89.7 million folios that, according to CRISIL, are managed by the Indian mutual fund industry. UTIAMC’s history and track record in the mutual fund industry, strong brand recognition, distribution reach, performance and client relationships provide a platform for future growth.
The company and its predecessor (Unit Trust of India) have been active in the asset management industry for more than 55 years, having established the first mutual fund in India. For purposes of the SEBI Mutual Fund Regulations, the four sponsors are the State Bank of India (“SBI”), Life Insurance Corporation of India (“LIC”), Punjab National Bank (“PNB”) and Bank of Baroda (“BOB”) (collectively, the “Sponsors”), each of which has the Government of India as a majority shareholder. T. Rowe Price Group, Inc., a global asset management company, is another major shareholder (through its subsidiary T. Rowe Price International Ltd. (“TRP”)).
UTI AMC has a national footprint and offers its schemes through a diverse range of distribution channels. As of June 30, 2020, its distribution network includes 163 UTI Financial Centres (“UFCs”), 257 Business Development Associates (“BDAs”) and Chief Agents (“CAs”) (40 of whom operate Official Points of Acceptance (“OPAs”)) and 43 other OPAs, most of which are in each case located in B30 cities. Company’s IFAs channel includes approximately 53,000 Independent Financial Advisors (” IFAs”) as of June 30, 2020. The company believes that its BDA and CA network distinguishes from other asset management companies in India, as BDAs and CAs, who are engaged by it on an exclusive basis primarily in B30 cities, allow the company to efficiently and effectively develop, maintain and service its relationships with distributors and investors.
UTIAMC’s banks and distributors (“BND”) channel involves distribution arrangements with domestic and foreign banks, as well as with national and regional distributors. In addition, it has dedicated sales teams for institutional and public sector undertaking (“PSU”) clients and also offer products directly through UFCs, digital applications and website. Company’s distribution channels are supported by 459 relationship managers (“RMs”) (as of June 30, 2020), who interact with clients and distributors and help generate new business and maintain existing relationships. Investors are also able to directly invest in its mutual funds through mobile applications for customers. It also has offices in London, Dubai, Guernsey and Singapore, through which it markets offshore and domestic mutual funds to offshore investors who seek to invest in India.
Its clients include domestic individual investors (which represented 43.8% of the total closing AUM for domestic mutual funds (“Domestic Mutual Fund Closing AUM”) as of June 30, 2020), corporate and other institutional investors (which represented 45.4% of Domestic Mutual Fund Closing AUM as of June 30, 2020), and banks and other financial institutions (which represented 3.5% of Domestic Mutual Fund Closing AUM as of June 30, 2020). Trusts (5.7%) and non -resident Indians (“NRIs”) (1.7%) represented the remainder of Domestic Mutual Fund Closing AUM as of June 30, 2020.
It manages 153 domestic mutual fund schemes, comprising equity, hybrid, income, liquid and money market funds as of June 30, 2020. Company’s Domestic Mutual Fund QAAUM was Rs. 1,336.3 billion as of June 30, 2020, which accounted for approximately 5.4%, or the eighth largest amount, of the total QAAUM invested in all mutual funds in India as of June 30, 2020, according to CRISIL.
ISSUE DETAILS / CAPITAL HISTORY:
For listing gains and to provide an exit to existing stakeholders, UTI AMC is coming out with a maiden IPO of an offer for sale of 38987081 shares of Rs. 10 each. The issue opens for subscription on September 29, 2020, and will close on October 01, 2020. The company has fixed the price band of Rs. 552 – Rs. 554 per share. Minimum application is to be made for 27 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. UTI AMC mulls mobilizing around Rs. 2152.09 cr. – Rs. 2159.88 cr. (based on lower and upper price band) through this IPO. Issue constitutes 30.75% of the post issue paid-up capital of the company.
The company has reserved 200000 shares for eligible employees. From the residual portion, it has reserved 50% for QIBs, 15% for HNIs and 35% for retail category.
Having issued initial equity at par, the company issued further equity in the price range of Rs. 200 to Rs. 260 between August 2015 and September 2015. It has also issued bonus shares in the ratio of 4 for 1 in December 2006 and 3 for 2 in December 2007.
The average cost of acquisition of shares by the promoters / selling stakeholders ranging from Rs. 99.76 to Rs. 200.43 per share. Post issue, UTIAMC’s current paid-up equity capital of Rs. 126.79 cr. will remain the same post-issue following secondary offer. With this issue, the company is looking for a market cap of Rs. 7024.01 cr. (based on upper price band). Current paid-up equity capital stands supported by free reserves of Rs.2708.14 cr. as on June 30, 2020.
The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., Axis Capital Ltd., Citigroup Global Markets India Pvt. Ltd., DSP Merrill Lynch Ltd. (BofA Securities), ICICI Securities Ltd., JM Financial Ltd., and SBI Capital Markets Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, on a consolidated basis, UTI AMC has posted revenue/ net profits of Rs. 1162.75 cr. / Rs. 405.09 cr. (FY18), Rs. 1080.89 cr./ Rs. 347.93 cr. (FY19) and Rs. 890.96 cr. / Rs. 275.49 cr. (FY20). Thus it has shown declining trends in income. However, for the Q1 of FY21, the company has earned a net profit of Rs. 101.08 cr. on revenue of Rs. 271.07 cr.
For the last three fiscals, on a consolidated basis, UTI AMC has posted an average EPS of Rs. 24.83 and an average RoNW of 12.02%. The issue is priced at a P/BV of 2.48 based on its NAV of Rs. 223.60 as on June 30,, 2020 (based on upper price band).
If we attribute annualize latest earnings and attribute on fully diluted equity post issue, then asking price is at a P/E of around 17.37 against industry average P/E of 38.64. However, if we attribute FY20 earnings then the issue is at a P/E of 25.49. Thus prima facie issue is fully priced based on latest earnings.
BRLM’s TRACK RECORD:
The seven Book Running Lead Managers associated with this issue have handled 28 public issues in the past three years, out of which 09 issues closed below the issue price on listing date.
COMPARISION WITH LISTED PEERS:
As per offer documents, UTI AMC has shown HDFC AMC (market cap Rs. 44746 cr.) and Nippon Life AMC (market cap Rs. 15565 cr.) as its listed peers. They are currently trading at a P/Es of 35.19 and 35.08 respectively. (As on September 25, 2020 noon).
Conclusion / Investment Strategy
UTI AMC has emerged as the second-largest AMC post revamp. According to management, they are back on track with its improved performance for FY21 Q1. The company is gearing to give the best services to its clients and investors with modern technology and research-based investments. Considering its financial performance so far, the issue appears fully priced. Investors may park their funds with a long term perspective.
The original review is penned by Dilip Davda, appears on Chittorgarh.com and is available here.
- MDSL is one of the defence public sectors undertaking with “Mini Ratna-1” status.
- A regular dividend-paying company since last 15 years.
- MDSL has orders on hand worth Rs. 54000 cr. plus to be executed in the next 6/7 years.
- The issue is priced reasonably to benefit one and all.
- Investors may consider investment for the medium to long term.
PREFACE:
MDSL filed its DRHP in the month of March 2018 and is now finally coming with its maiden IPO in September 2020. Management clarified that while the volatile market was at center stage, regulatory clearances and other unforeseen circumstances caused the delay. It enjoys a virtual monopoly in destroyers and submarine buildings.
ABOUT COMPANY:
Mazagon Dock Shipbuilders Ltd. (MDSL) is a defence public sector undertaking shipyard under the department of defence production, MoD (Ministry of Defence) with a maximum shipbuilding and submarine capacity of 40000 DWT (Source CRISIL Report). The company is engaged in the construction and repair of warships and submarines for the MoD for use by the Indian Navy and other vessels for commercial clients. It is a wholly-owned Government of India company, conferred with the “Mini Ratna-I” status in 2006, by the DPE. MDSL is India’s only shipyard to have built destroyers and conventional submarines for the India Navy. It is also one of the initial shipyards to manufacture Corvettes (Veer and Khukri class) in India.
Thus MDSL has business divisions in which it operates are Shipbuilding (includes building and repairs of naval ships), Submarine and heavy Engineering. The company is currently building four P-15 B destroyers and four P-17A stealth frigates and undertaking repair and refit of a ship for the Mod for use by the Indian Navy. MDSL is currently building/in the process of delivering four Scorpene-class submarines under a transfer of technology agreement with Naval Group as well as one medium refit and life certification of a submarine for the Mod for use by the Indian Navy. Since 1960, the company has built a total of 795 vessels including 25 warships, from advanced destroyers to missile boards and three submarines (source CRISIL report). The company has also delivered cargo ships, passenger ships, supply vessels, multipurpose support vessels, water tankers, tugs, dredgers, fishing trawlers, barges and border outposts for various customers in India as well as abroad (source CRISIL).
MDSL’s shipyard is strategically located on the west coast of India, on the sea route connecting Europe, West Asia and the Pacific Rim, a busy international maritime route. Some of the vessels built and delivered by MDSL in the past include six Leander class frigates, three Godavari class frigates, three corvettes, four missile boards, six destroyers, four submarines and three Shivalik class frigates for the Mod for the use by the Indian Navy and constructed and delivered seven offshore patrol vessels to the Indian Coast Guard.
As on the date of filing RHP, the company has a healthy order book worth Rs. 54000 cr. which is to be executed in the next six to seven years. MDSL suffered a severe setback in 2003 to 2005. The company has an uninterrupted dividend track record for the last 15 years.
ISSUE DETAILS / CAPITAL HISTORY:
For listing gains and to disinvest Government of India’s stake, MDSL is coming out with a maiden IPO of an offer for sale of 30599017 shares of Rs. 10 each. The issue opens for subscription on September 29, 2020, and will close on October 01, 2020. The company has fixed the price band of Rs. 135 – Rs. 145 per share. Minimum application is to be made for 103 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. MDSL mulls mobilizing around Rs. 413.09 cr. – Rs. 443.69 cr. (based on lower and upper price band) through this IPO. Issue constitutes 15.17% of the post issue paid-up capital of the company.
The company has reserved 345517 shares for eligible employees. From the residual portion, it has reserved 50% for QIBs, 15% for HNIs and 35% for retail category.
Having issued/converted entire equity at par, the company issued bonus shares in the ratio of 1 for4 in March 2017. The company also bought back 24900000 equity shares @ Rs. 101.80 in December 2017 and 22410000 equity shares at Rs. 124 in March 2020.
The average cost of acquisition of shares by the promoters/ selling stakeholders is Rs. 16.47 per share. Post issue, MDSL’s current paid-up equity capital of Rs. 201.69 cr. will remain the same as this is a secondary offer. With this issue, the company is looking for a market cap of Rs. 2924.51 cr. (based on upper price band). Current paid-up equity capital stands supported by free reserves of Rs.2867.44 cr. as on March 31, 2020.
The issue is jointly lead managed by Yes Securities Ltd., Axis Capital Ltd., Edelweiss Financial Services Ltd., DAM Capital Advisor Ltd. (erstwhile IDFC Securities Ltd.) and JM Financial Ltd., while Alankit Assignments Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE:
On financial performance front, for the last four fiscals, on a consolidated basis MDSL has posted revenue/comprehensive net profits of Rs. 4274.86 cr. / Rs. 598.26 cr. (FY17), Rs. 5027.63 cr. / Rs. 496.17 cr. (FY18), Rs. 5204.67 cr./ Rs. 532.47 cr. (FY19) and Rs. 5535.31 cr. / Rs. 477.06 cr. (FY20).
For the last three fiscals, on a consolidated basis, MDSL has posted an average EPS of Rs. 22.03 and an average RoNW of 16.21%. The issue is priced at a P/BV of 0.95 based on its NAV of Rs. 152.17 as on June 30, 2020 (based on upper price band). For the last three fiscals, MDSL has distributed on an average Rs. 23.4 cr. as yearly dividend payouts.
If we attribute FY20 earnings on fully diluted equity post issue, then asking price is at a P/E of around 6.39 (based on upper price band), against peer group average P/E of 7.5. The issue is reasonably priced leaving something on the table for all.
BRLM’s TRACK RECORD:
The five Book Running Lead Managers associated with this issue have handled 23 public issues in the past three years, out of which 09 issues closed below the issue price on listing date.
COMPARISION WITH LISTED PEERS:
As per offer documents, MDSL has shown Cochin Shipyard, Reliance Naval and Garden Reach Shipbuilders as its listed peers. They are currently trading at a P/Es of 7.36, 00 and 13.33 (as on September 24, 2020). However, they are not truly comparable on an apple to apple basis.
Conclusion / Investment Strategy
MDSL, a Mini Ratna-1, has been a profit-making and dividend distributing PSU under MoD. It has orders worth Rs. 54000+ crore on hand which are to be completed in 6 to 7 years. Its financial track record so far has been indicating sustained top line with ups and down in PAT due to certain provisioning. Being a maiden IPO from a shipyard that builds destroyers and submarine is sure to catch fancy post listing. Investors may consider investment for the medium to long term perspective in this reasonably priced issue.
The original review is authored by Dilip Davda, appears on Chittorgarh.com and is available here.
The Indian stock market ended over 2 per cent higher on Friday due to across-the-board buying.
The S&P BSE Sensex ended 835 points, or 2.28 per cent higher at 37,389 levels with all the 30 constituents ending in the green. Bajaj Finserv (up 6.6 per cent) was the top gainer on the index, followed by HCL Tech (up over 5 per cent), and Bharti Airtel (up 5 per cent).
NSE’s Nifty, meanwhile, reclaimed the crucial 11,000 level to settle at 11,050, up 245 points, or 2.26 per cent. India VIX dropped nearly 12 per cent to 20.76 levels.
On a weekly basis, both Sensex and Nifty declined nearly 4 per cent.
All the Nifty sectoral indices ended in the green, led by Nifty IT and FMCG indexes, both up nearly 3.5 per cent, each.
In the broader market, the S&P BSE MidCap index gained around 3 per cent to 14,337 levels while the S&P BSE SmallCap index added 2.31 per cent to 14,496 levels.
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