INS Vikrant (2013)  being undocked at the Cochin Shipyard. (Source: Indian Navy)

India’s Only Profitable Shipbuilder’s IPO Opens Today

The initial public offering of Cochin Shipyard Ltd., the first by a state-owned shipbuilder, opened on Tuesday. The company plans to raise Rs 1,468 crore via the share sale and will use the proceeds to set up a new facility.

Cochin Shipyard, which built India’s first indigenous aircraft carrier, the INS Vikrant, will sell shares at Rs 424-432 apiece. If the IPO sails through, it will make the company India’s only profitable shipbuilder in the listed space.

Here’s all you need to know about India’s largest public sector shipyard and its maiden offer…

India’s Only Profitable Shipbuilder’s IPO Opens Today

Shareholding Pattern

The government will pare its stake by 10 percent (1.13 crore shares) and the company will issue fresh 2.3 crore equity shares. The government’s holding in the company will come down to 75 percent after the IPO.

India’s Only Profitable Shipbuilder’s IPO Opens Today

Business

Cochin Shipyard is engaged in shipbuilding and repair and also offers marine engineering training. It has two docks – a shipbuilding dock, which can accommodate vessels with a capacity of 1,10,000 deadweight tonnage (DWT), and one of the largest repair docks in India with a capacity of 1,25,000 DWT.

The company caters to the Indian defence sector and commercial sector worldwide. The company has built and repaired some of the largest ships in India.

Market Share

It has the second-largest shipbuilding capacity in India and the highest market share in ship repairs.

India’s Only Profitable Shipbuilder’s IPO Opens Today

Revenue

Cochin Shipyard’s revenue grew at a compounded annual growth rate of 7 percent to Rs 2,227 crore in the last three years, with most of its coming from defence shipbuilding, according to its draft red herring prospectus.

The contribution of ship repairs to total revenue doubled to 26 percent in the financial year 2014-15.

India’s Only Profitable Shipbuilder’s IPO Opens Today

Peer Comparison

Its peers include listed companies like ABG Shipyard Ltd., Reliance Defence and Engineering Ltd. and Bharati Defence and Infrastructure Ltd. — which are all loss-making.

India’s Only Profitable Shipbuilder’s IPO Opens Today

The company cannot be compared to international peers because of different operational and market dynamics.

Financials Highlights

Cochin Shipyard’s net worth was close to Rs 2,031 crore as of March 31, translating into a book value of Rs 149 per share after the IPO.

At the upper end of the price band – Rs 432 apiece – the earnings per share and price-earnings ratio for the year ended March, after issuing new shares, stands at Rs 23 and 18.8 times, respectively, according to BloombergQuint’s calculations.

At the lower end – Rs 424 apiece – the price-earnings ratio for the year ended March 2017, after issuing new shares (post issue basis) stands at 18.4 times, respectively, according to BloombergQuint’s calculations.

Cochin Shipyard's revenue grew at a CAGR of 8 percent and net profit rose at 15 percent over five years to March.

Earnings before interest, tax and depreciation and amortisation grew at a CAGR of 13 percent, while the EBITDA margins expanded by 300 basis points to 17 percent during the period.

Order book stood at Rs 3,306 crore and it has bid for three major tenders of the Indian Navy amounting to Rs 12,000 crore. Shipbuilding order book stood at Rs 2,936 crore and repairs at Rs 370 crore.

The company has been consistently paying dividends over the last five years. Debt stood at Rs 123 crore, mostly in tax-free infrastructure bonds, and it has a cash of Rs 2,003 crore as of June 30.

Brokerage Take

All the brokerages have a ‘subscribe’ rating for the IPO on the back of defence orders, a strong order book and cheaper valuations.

Cochin Shipyard is a good proxy play on the Indian defence sector. Strong net cash balance sheet, strong order pipeline and option value of bagging further Air craft carriers could provide multiyear visibility of earnings.
Prabhudas Lilladher
Cochin Shipyard has strong presence in both shipyard and ship repair segment and has delivered strong revenue/EBITDA /profit growth. At higher end of price band, the issue is priced at 18.8 times its earnings for the year ended March post issue, which we believe is attractive. We recommend ‘subscribe’ for long-term investment.
Motilal Oswal
Recommend ‘subscribe’ on the offering based on robust order book, strong order inflow visibility, best-in-class execution capabilities and leverage free balance sheet.
ICICI Direct
Cochin Shipyard has consistently delivered goods, even during the slowdown phase in shipbuilding industry. The IPO provides good retail exposure to the promising defence sector at attractive valuations.
IIFL