Article

Garden Reach Shipbuilders & Engineers

21 Sep 2018 Nikita Bhoota

Issue Opens: September 24, 2018
Issue Closes: September 26, 2018
Face Value: Rs10
Price Band:  Rs115-118
Issue Size: ~Rs339 cr
Public Issue: 292 lakh shares
Bid Lot: 120 Equity shares     
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

100.0

74.5

Public

0.0

25.5

Source: RHP

Company Background

Garden Reach Shipbuilders & Engineers Ltd. (GRSE), a public sector shipyard, specializes in building warships and vessels primarily for the Indian Navy and the Indian Coast Guard (ICG). Its business divisions are Shipbuilding (~94% of FY18 revenues), Engineering (~5%) and Engine Production. Its shipbuilding order book as on July 2018 stood at Rs20,029cr, of which order for 3 P17-A Class Frigates account for ~Rs19,300cr (building work has commenced ahead of schedule).

Offer Details

The IPO consists of Offer for Sale of 2.92cr shares by the Govt. of India at the price band of Rs115-118 aggregating to Rs331-339cr. The offer includes employee reservation of 0.06cr shares and a discount of Rs5 for retail individual bidders and eligible employees. The offer constitutes 25.5% of equity share capital.

Financials

Standalone Rs cr.

FY15

FY16

FY17

FY18

Revenue from operations

1,568

1,665

929

1,347

EBITDA Margin %

4.0

5.5

-17.3

-1.1

PAT

52

164

11

87

EPS (`)*

4.5

14.4

1.0

7.6

P/E*

26.1

8.2

117.9

15.6

P/BV*

1.3

1.2

1.2

1.3

RoE (%)

10.3

15.3

1.0

8.3

Source: RHP, 5Paisa Research; *EPS &Ratios at higher end of the price band and on post IPO Shares

Key Investment Rationale

As on July 2018, its order book stood at Rs20,314cr of which shipbuilding orders were Rs20,029cr, engineering orders were Rs85cr and engine segment orders were Rs199cr. Over FY15-18, its overall order book has averaged at Rs22,000cr, its executable order book is estimated to be in the range of Rs3,000-5,000cr over the same period. This is because, GRSE had bagged a prestigious order worth Rs19,286cr for three super sophisticated Stealth Frigates under Project P-17A in FY15. Since the Frigates were in the design stage for initial years, the actual production was only supposed to commence in February 2018, however, the commencement is ahead of schedule which will lead to steady revenues going forward.

Apart from the above mentioned secured and L1 orders, the company can benefit from Indian Navy and ICG’s fleet expansion plans. The Indian Navy and ICG fleet is expected to grow to 200 vessels by year 2027 from current 140 and 130 vessels respectively. As per the RHP, Indian Navy’s estimated capital budget for up to year 2027 amounts to Rs4.5 lakh cr. Further, 20-40% of the outlay would be towards destroyers/frigates and corvettes, landing platform docks, etc., which can be favorable for GRSE.

Key Risk

GRSE has substantial reliance on Indian Navy and ICG for revenue. Any decrease in orders from Indian Navy and ICG will impact its revenues. Other factors that can have a negative impact include decline or reprioritization of funding in the Indian defense budget.

Research Disclaimer

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Garden Reach Shipbuilders & Engineers

21 Sep 2018 Nikita Bhoota

Issue Opens: September 24, 2018
Issue Closes: September 26, 2018
Face Value: Rs10
Price Band:  Rs115-118
Issue Size: ~Rs339 cr
Public Issue: 292 lakh shares
Bid Lot: 120 Equity shares     
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

100.0

74.5

Public

0.0

25.5

Source: RHP

Company Background

Garden Reach Shipbuilders & Engineers Ltd. (GRSE), a public sector shipyard, specializes in building warships and vessels primarily for the Indian Navy and the Indian Coast Guard (ICG). Its business divisions are Shipbuilding (~94% of FY18 revenues), Engineering (~5%) and Engine Production. Its shipbuilding order book as on July 2018 stood at Rs20,029cr, of which order for 3 P17-A Class Frigates account for ~Rs19,300cr (building work has commenced ahead of schedule).

Offer Details

The IPO consists of Offer for Sale of 2.92cr shares by the Govt. of India at the price band of Rs115-118 aggregating to Rs331-339cr. The offer includes employee reservation of 0.06cr shares and a discount of Rs5 for retail individual bidders and eligible employees. The offer constitutes 25.5% of equity share capital.

Financials

Standalone Rs cr.

FY15

FY16

FY17

FY18

Revenue from operations

1,568

1,665

929

1,347

EBITDA Margin %

4.0

5.5

-17.3

-1.1

PAT

52

164

11

87

EPS (`)*

4.5

14.4

1.0

7.6

P/E*

26.1

8.2

117.9

15.6

P/BV*

1.3

1.2

1.2

1.3

RoE (%)

10.3

15.3

1.0

8.3

Source: RHP, 5Paisa Research; *EPS &Ratios at higher end of the price band and on post IPO Shares

Key Investment Rationale

As on July 2018, its order book stood at Rs20,314cr of which shipbuilding orders were Rs20,029cr, engineering orders were Rs85cr and engine segment orders were Rs199cr. Over FY15-18, its overall order book has averaged at Rs22,000cr, its executable order book is estimated to be in the range of Rs3,000-5,000cr over the same period. This is because, GRSE had bagged a prestigious order worth Rs19,286cr for three super sophisticated Stealth Frigates under Project P-17A in FY15. Since the Frigates were in the design stage for initial years, the actual production was only supposed to commence in February 2018, however, the commencement is ahead of schedule which will lead to steady revenues going forward.

Apart from the above mentioned secured and L1 orders, the company can benefit from Indian Navy and ICG’s fleet expansion plans. The Indian Navy and ICG fleet is expected to grow to 200 vessels by year 2027 from current 140 and 130 vessels respectively. As per the RHP, Indian Navy’s estimated capital budget for up to year 2027 amounts to Rs4.5 lakh cr. Further, 20-40% of the outlay would be towards destroyers/frigates and corvettes, landing platform docks, etc., which can be favorable for GRSE.

Key Risk

GRSE has substantial reliance on Indian Navy and ICG for revenue. Any decrease in orders from Indian Navy and ICG will impact its revenues. Other factors that can have a negative impact include decline or reprioritization of funding in the Indian defense budget.

Research Disclaimer