Article

Mazagon Dock Shipbuilders Ltd IPO Note

30 Sep 2020 Nikita Bhoota

Mazagon Dock Shipbuilders Ltd. IPO

Rating: Subscribe


Issue Opens: September 29, 2020

Issue Closes: October 01, 2020

Price Band: Rs.135-145

Issue Size: Rs.444cr (at upper price band)

Bid Lot: 103 Equity shares

Issue Type:OFS & Fresh Issue

% Shareholding

Pre IPO

Post IPO

Promoter

100

15

Public

0

85

Source: RHP

 

Company Background

Mazagon Dock Shipbuilders Ltd. (MDL) is a Defence Public Sector Undertaking under ministry of Defence. It is one of the India’s leading shipyards with a maximum shipbuilding and submarine capacity of 40,000 DWT (Source: Crisil).  The shipyard builds and repair warships and conventional submarines at its facilities in Mumbai and Nhava for the MoD for use by the Indian Navy and other vessels for commercial clients. Since 1960, MDL has built a total of 795 vessels including 25 warships, from advanced destroyers to missile boats and three submarines. MDL had also delivered cargo ships, passenger ships, supply vessels, multipurpose suppose vessels, water tankers, tugs, dredgers, fishing trawlers, barges and border outposts for various customers in India as well as abroad. The business divisions in which MDL operates are (i) shipbuilding and (ii) submarine and heavy engineering. Its shipbuilding division includes the building and repair of naval ships. Its submarine and heavy engineering division includes building, repair and refits of diesel electric submarines.

Offer Details

The issue consists of Fresh Issue of Offer for sale of ~3 Cr shares amounting to Rs.444 Cr.

Financials

Consolidated Rs Cr

FY17

FY18

FY19

FY20

Revenue

3,519

4,470

4,614

4,978

EBITDA (%)

3.6

3.5

5.7

5.4

Adj EPS (Rs)

29.7

24.6

26.4

24.1

PE(x)

4.9

5.9

5.5

6.0

ROE (%)

40.0

17.0

17.6

15.5

Source: RHP, 5paisa Research, Note: EPS &P/E is on upper end of price band

Key Points

MDL is one of the few shipyards under the MoD that only makes warships at the moment and is the only shipyard to have built destroyers and conventional submarines for the Indian Navy. MDL is also one of the initial shipyards to have built Corvettes in India. We believe that its strong pedigree in making warships & conventional submarines are likely to provide an upper hand in garnering additional orders like Project P-75I where it has cleared all benchmarks. Indian Maritime security has been garnering significant attention in the past decade and geopolitical tensions with China (growing military presence in the Indian ocean) are likely to result in steady fleet and submarine additions.

MDL’s order book is likely to be executable over 6-7 years which even without considering order inflows provides strong revenue visibility. It has sufficient capacity in place and is exploring additional development which can help cater to any uptick in orders. MDL intends to increase its ship repair revenues from ~3% of overall revenues (FY20) to 15-20% gradually which bodes well from profitability perspective. Increasing retention of cost savings and potential ~50bps increase in margins under revised acquisition procedures are key margin drivers.

Key Risk Factors:

Liberalization of policies for Make in India initiative may open up competition which may result in loss of upcoming awards in favor or private sector or foreign players and may trigger aggressive bidding

Covid or outbreak of any other severe communicable disease could have a potential impact on its business and results of operations.

Conclusion:

Considering the revenue visibility, good dividend yield of ~6% and undemanding valuations, we recommend SUBSCRIBE on the Mazagon Dock IPO issue.

Watch this video to know about the issue and what management has to say on this.

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Mazagon Dock Shipbuilders Ltd IPO Note

30 Sep 2020 Nikita Bhoota

Mazagon Dock Shipbuilders Ltd. IPO

Rating: Subscribe


Issue Opens: September 29, 2020

Issue Closes: October 01, 2020

Price Band: Rs.135-145

Issue Size: Rs.444cr (at upper price band)

Bid Lot: 103 Equity shares

Issue Type:OFS & Fresh Issue

% Shareholding

Pre IPO

Post IPO

Promoter

100

15

Public

0

85

Source: RHP

 

Company Background

Mazagon Dock Shipbuilders Ltd. (MDL) is a Defence Public Sector Undertaking under ministry of Defence. It is one of the India’s leading shipyards with a maximum shipbuilding and submarine capacity of 40,000 DWT (Source: Crisil).  The shipyard builds and repair warships and conventional submarines at its facilities in Mumbai and Nhava for the MoD for use by the Indian Navy and other vessels for commercial clients. Since 1960, MDL has built a total of 795 vessels including 25 warships, from advanced destroyers to missile boats and three submarines. MDL had also delivered cargo ships, passenger ships, supply vessels, multipurpose suppose vessels, water tankers, tugs, dredgers, fishing trawlers, barges and border outposts for various customers in India as well as abroad. The business divisions in which MDL operates are (i) shipbuilding and (ii) submarine and heavy engineering. Its shipbuilding division includes the building and repair of naval ships. Its submarine and heavy engineering division includes building, repair and refits of diesel electric submarines.

Offer Details

The issue consists of Fresh Issue of Offer for sale of ~3 Cr shares amounting to Rs.444 Cr.

Financials

Consolidated Rs Cr

FY17

FY18

FY19

FY20

Revenue

3,519

4,470

4,614

4,978

EBITDA (%)

3.6

3.5

5.7

5.4

Adj EPS (Rs)

29.7

24.6

26.4

24.1

PE(x)

4.9

5.9

5.5

6.0

ROE (%)

40.0

17.0

17.6

15.5

Source: RHP, 5paisa Research, Note: EPS &P/E is on upper end of price band

Key Points

MDL is one of the few shipyards under the MoD that only makes warships at the moment and is the only shipyard to have built destroyers and conventional submarines for the Indian Navy. MDL is also one of the initial shipyards to have built Corvettes in India. We believe that its strong pedigree in making warships & conventional submarines are likely to provide an upper hand in garnering additional orders like Project P-75I where it has cleared all benchmarks. Indian Maritime security has been garnering significant attention in the past decade and geopolitical tensions with China (growing military presence in the Indian ocean) are likely to result in steady fleet and submarine additions.

MDL’s order book is likely to be executable over 6-7 years which even without considering order inflows provides strong revenue visibility. It has sufficient capacity in place and is exploring additional development which can help cater to any uptick in orders. MDL intends to increase its ship repair revenues from ~3% of overall revenues (FY20) to 15-20% gradually which bodes well from profitability perspective. Increasing retention of cost savings and potential ~50bps increase in margins under revised acquisition procedures are key margin drivers.

Key Risk Factors:

Liberalization of policies for Make in India initiative may open up competition which may result in loss of upcoming awards in favor or private sector or foreign players and may trigger aggressive bidding

Covid or outbreak of any other severe communicable disease could have a potential impact on its business and results of operations.

Conclusion:

Considering the revenue visibility, good dividend yield of ~6% and undemanding valuations, we recommend SUBSCRIBE on the Mazagon Dock IPO issue.

Watch this video to know about the issue and what management has to say on this.