HIGH BROW MARKET RESEARCH INVESTMENT ADVISOR PVT. LTD
IPO NOTE
28th July 2017
RETAIL EQUITY RESEARCH
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Cochin Shipyard Limited
Price Range- Rs.424- 432 RII Price Range- Rs.403-411
Opportunity to grow with India’s Largest Public Sector Shipyard.. Incorporated in 1969, Cochin Shipyard Limited is one of the largest public sector shipyard in India in terms of dock capacity. They operates a shipyard that provides shipbuilding and ships/offshore structures repair services. Cochin Shipyard's shipbuilding activities include the construction of vessels for clients operating in the defense and in the commercial sector shipping industry. In addition to shipbuilding and ship repair, they also offers marine engineering training programs as well as offer additional courses, including six months practical training for marine engineering students from colleges affiliated to universities, fire prevention and firefighting, and elementary first aid training through its marine engineering training institute; and chemical, mechanical, and non-destructive testing services of metals, welds, and alloys. They have built and delivered vessels across broad class ifications including bulk carriers, tankers, Platform Supply Vessels (“PSVs”), Anchor Handling Tug Supply vessels (“AHTSs”), barges, bollard pull tugs, passenger vessels and Fast Patrol Vessels (“FPVs ”). They are currently building India's first Indigenous Aircraft Carrier (“IAC”) for the Indian Navy.
Company Promoters
Issue Details Date of Opening
01st Aug 2017
Date of Closing
03rd Aug 2017
Total no. Of Shares Offered
3,39,84,000
Price Band
Rs.424-432
Discounted Price Band ( For Retails Investors & Employee) Face Value
Rs.403-Rs.411 Rs.10
Bid Lot
Multiples of 30 Shares
Listing
Nse, Bse
Lead Manager Registrars Issue Size
Edelweiss Capital,JM Financial,SBI Capital Link Intime India Pvt Ltd
Fresh Issue
2,26,56,000
The President of India is the promoter of the company. The Promoter along with its nominees, currently holds 100% of the pre-Issue paid-up equity share capital of the Company.
Offer For Sale
1,13,28,000
Purpose of IPO
Net Issue(1468.11 Cr)
3,31,60,000
A. QIB Portion(50%)
1,65,80,000
Company proposes to utilize the Net Proceeds towards funding of the following objects:
B.NonInstitutional Portion(15%)
1. Setting up of a new dry dock within the existing premises of the Company (“Dry Dock”); 2. Setting up of an international ship repair facility at Cochin Port Trust area (“ISRF”); and 3. General corporate purposes.
Employee Reservation Portion
8,24,000
49,74,000
C. Retail Portion(35%)
1,16,06,000
Shareholding(%)
Pre Issue
Promoters Others Total
100% 0% 100%
Post Issue 75% 25% 100%
Company Description Opportunity to Invest in Miniratna.. 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). Issue consists of fresh equity issue of 22656000 equity shares and 11328000 equity shares by offer for sale. It has reserved 824000 equity shares for eligible employees. 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. 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. 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.
Competitive Strengths One of India’s leading public-sector shipyard catering to both commercial clients as well as engaged in the defence sector with a multitude of offerings for a broad range of vessels across life cycles.
Performance Analysis On 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 has 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 order on hands worth Rs. 2936 crore as on 31.03.17. CSL has association 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 defense 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. Summary of financial Information(Consolidated) Particulars For the Year/Period ended(In Rs. Million) 31-Mar-17 31-Mar-16 31-Mar-15 Total Assets 33,164.37 33,488.61 28,912.85 Total Revenue 22,085.01 20,968.81 16,604.52 Profit After Tax 3,121.82 2,917.52 692.82 Break-Down of Average Operating Revenues Activity Clients engaged in Commercial Defence Sector Clients Shipbuilding 64.74% 20.60% Ship Repair 7.46% 6.70% Other operating revenue 0.47% 0.03%
Qualitative Factors Some of the qualitative factors which make IPO Impressive
One of India’s leading public-sector shipyards catering to both commercial clients as well as clients engaged in the defence sector with a multitude of offerings for a broad range of vessels across life cycles. Modern facilities andinfrastructure and integrated capabilities to deliver quality products and services. Order book with a strong customer base of reputable ship owners and marquee clients. Competitive cost structure and efficient operations. Led by a dedicated board, long serving and experienced senior management backed by a strong pool of experienced professionals. Continuous profits leading to robust financial performance.
Quantitative Factors Some of the Quantitative factors which make IPO Impressive Prepared from Previous Financial Statements 1. Basic and Diluted Earning Per Share(Eps): Year Ended March 31,2014 March 31,2015 March 31,2016 Weighted Average
Basic EPS(in Rs) 25.03 6.29 25.23 18.88
Diluted EPS(in Rs.) 25.03 5.29 25.23 18.88
2. Comparison of accounting ratio with Industry Peers: Name of Company Face Value Company Cochin Shipyard Ltd 10 Peers Reliance Defence and 10 Engineering Ltd ABG Shipyard Ltd 10 Bharati Defence and 10 Infrastructure Ltd
Eps
NAV(Rs/Per share)
RoNW
25.23
151.88
16.61%
(8.03)
17.50
(45.87%)
(686.55) (438.92)
(587.29) (438.92)
NA NA
ON BRLM’s front, the three BRLMs(Book Runner Lead Managers) 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.
Our Research Recommendation Bid Open on Bid Closes on Finalisation of Basis of Allotment Initiation of refunds Credit of equity shares to Demat Account Commencement of trading of the Equity Shares on the stock exchanges Recommendation Expected Returns Expected open price on Listing Day
01st Aug 2017 03rd Aug 2017 On or 8th Aug 2017 9th Aug 2017 10th Aug 2017 11th Aug 2017 Subscribe Upside movement of 50% Rs.600/-
Conclusion Investors may consider investment for medium to long term in this maiden IPO. We are recommended to subscribe the IPO with Target Objective of Rs. 600/-(Nearly 50% of your Investment)