Gland Pharma Ltd IPO Note

Gland Pharma Ltd IPO Note
IPO
by Nikita Bhoota 11/09/2020


Gland Pharma Ltd. IPO

Rating: Subscribe

Issue Opens: November 9, 2020

Issue Closes: November 11, 2020

Price Band: Rs1,490- 1,500

Issue Size: ~Rs6,480cr (at upper price band)

Bid lot: 10 Equity shares

 

% Shareholding

Pre-offer

Post-offer

Promoters (Fosun)

74%

58%

Gland Celsus

13%

6%

Empower Trust

5%

3%

Nilay Trust

2%

1%

Others

6%

32%

Total

100%

100%

Source: Company,5paisa research

Company Background

Gland Pharma Limited is one of the fastest growing generic injectables-focused companies by revenue in the United States from 2014 to 2019 (Source: IQVIA Report). Company sell its 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. Company was established in Hyderabad, India in 1978 and have 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. Company is present in sterile injectables, oncology and ophthalmics, and focus on complex injectables, NCE-1s, First-to-File products and 505(b)(2) filings. Companies’ delivery systems include liquid vials, lyophilized vials, pre-filled syringes, ampoules, bags and drops. Company is expanding its 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. 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, Company had manufacturing capacity for finished formulations of approximately 755 million units per annum.

Financials

Consolidated Rs Cr

FY19

FY20

Revenue

2,044

2,633

EBITDA (%)

34.6

36.3

Pre Excep EPS

30.5

49.9

PE(x)

49.3

30.1

ROE (%)

17.9

23.8

Source: company, 5paisa Research, Note: P/E is on upper end of price band.

Key Points

Gland has created a niche for itself in the B2B generic injectables segment, with the company having strong relationships with several large global injectable players (Sagent, Apotex, Fresenius and Athenex). Given its non-exclusive contracts with multiple partners, the B2B model allows Gland to garner 25- 30% market share in several of its molecules, thereby driving economies of scale at a product-level. Additionally, a vertically integrated supply chain with backward integration for key molecules (Enoxaparin, Heparin), enable Gland to maintain tight cost control.

Injectable products account for 39% of the global pharma market by value, and globally volume growth in injectable products has been higher at 6% Cagr over 2014-19 vs. a 2% Cagr for oral-solid products. Given the complexity involved in manufacturing sterile injectable products, limited competition and frequent shortages, injectable products typically have higher Ebitda margins of 35-40% (vs. 15-20% for oral-solids), thereby driving strong profitability for most of the established injectable players.

US/India are the two key markets for Gland, where the company has delivered 18% cc/25% revenue Cagr over FY18-20, led by new launches. While Gland’s pending pipeline of 82 products will drive growth in the US market in the near-term, the company is also scaling-up its development capabilities in complex injectables (peptides, penems, long-acting injectables) and newer delivery formats. Although China could be a big potential market for Gland where the company’s Chinese parentage (Fosun Pharma) places it in an advantageous position to tap the Chinese market, we haven’t seen any significant traction on this front yet (Gland has only 6 product filings in China).

Key Risk Factor:

Top-5 products account for 40-45% of Gland’s US sales, where competition is still limited in Enoxaparin and Caspofungin.

Higher USFDA scrutiny on injectables facilities, although frequent customer audits have helped Gland to stay clear of USFDA issues so far

 

Conclusion:

We like Gland’s long-term story and recommend to Subscribe Gland Pharma IPO issue.

Watch this video for more details - 

Next Article

Which mid cap and small cap stocks to invest in for expected Multi-Cap rebalancing?

Which mid cap and small cap stocks to invest in for expected Multi-Cap rebalancing?
by Nikita Bhoota 16/09/2020
Market regulator SEBI on Friday i.e September 11, 2020 has revised asset allocation norms for multi-cap equity mutual fund schemes. According to the revised rules, multi-cap mutual funds will have to invest at least 75% of their total asset under management (AUM) in equity & equity related instruments versus the earlier threshold of 65% of the total AUM. The market regulator also mandated multi-cap funds to invest at least 25% in each small-cap, mid-cap and large-cap stocks. So, if a multi-cap scheme of a fund house has an AUM of Rs 10,000 crore, it will have to invest at least Rs 2,500 crore each in the three categories of stocks. According to earlier rule, multi-cap funds had freedom to invest across sectors and market capitalizations. SEBI has directed to abide by the revised rules by January 2021.

Data sourced from media reports shows at present the multi-cap fund (AUM of ~Rs1.5tn) holdings are tilted towards large cap stocks (~73% of AUM as of Aug-2020), So it is widely projected that the mutual funds would have to rebalance the portfolios by increasing allocation to midcap stocks (~17% of AUM as of Aug-2020) and small cap stocks (~6% of AUM as on Aug-2020). However, the clarification issued by SEBI (SEBI Clarification Circular) on Sunday evening also points out that portfolio rebalancing is one of the options available to mutual funds and the MF could consider options like merging with existing schemes. The clarification also suggests that SEBI is open to inputs from MF industry on the revised rules for multi-cap funds. 
We have shortlisted some of the 5 mid cap and small cap stocks that can benefit if the portfolio rebalancing was to happen. 

5 Mid Cap Stock Recommendations

Company

Sector

~Market Cap (Rs Cr)

EPS CAGR (%)

FY20-22E

PE FY21E

Godrej Agrovet Ltd.

Agriculture

10,190

31

30.1

Coromandel International Ltd.

Agriculture

23,727

14

18.7

Ashok Leyland

Auto

22,853

49

NA

Kajaria Ceramics Ltd.

Building Material

8,270

8

45.2

Ipca Laboratories Ltd.

Healthcare

27,214

27

25.1

Source:5paisa Research, BSE

Godrej Agrovet Ltd:

Godrej Agrovet (GAVL) is a diversified, research & development-focussed agri-business company. It is the one of the leading companies in the animal feed business and the market leader in the oil palm plantation industry in India. Additionally, it has a sizeable presence in agri-inputs (i.e. agrochemicals), dairy products, and processed poultry.

Coromandel International Ltd.

Coromandel is the flagship company of the Murugappa Group and operates in fertilisers and other agri-input segments. It is India's second-largest producer of phosphatic fertilisers and is particularly strong in the South-Indian states of Andhra Pradesh and Telangana. Coromandel has an installed capacity of nearly 3.5m tonne of fertilisers (22% of domestic production capacity) and also operates in the agrochemical, specialty nutrient and organic compost verticals.

Ashok Leyland:

Ashok Leyland (AL), part of the Hinduja Group, is one of India's leading manufacturers of commercial vehicles such as trucks, buses, tippers, trailers and Defence vehicles. It is the second-largest player in the medium & heavy trucks segment in India, with market share of ~33%. AL is one of the leading players in heavy buses with market share of ~43%. The company also manufactures and sells engines for industrial and marine applications, spare parts and special alloy castings.

Kajaria Ceramics Ltd.

Kajaria Ceramics is the largest manufacturer of ceramic and vitrified tiles in India. The company manufactures ceramic wall & floor tiles as well as glazed & polished vitrified tiles. It has also ventured into some allied segments (like bathware, plywood); albeit, these segments are still quite small at present, in terms of contribution to revenues and profits.

Ipca Laboratories Ltd.

Ipca Labs is a fully integrated pharmaceutical company producing branded and generic formulations, APIs and intermediates. The company has a strong position in the domestic market, mainly in cardiology, pain, anti-malarial/bacterial and anti-diabetics products. The company exports to 110 countries and is the ninth-largest pharma exporter from India, in terms of volume.

5 Small Cap Stock Recommendations

Company

Sector

~Market Cap (Rs Cr)

EPS CAGR (%) FY20-22E

PE FY21E

Kaveri Seeds

Agriculture

3467

17

10.9

Quess Corp

Industrials

6,470

14

33.6

Sudarshan Chemical Industries

Chemicals

3,258

26

27.2

Heidelberg cement India Ltd.

Cement

4,268

13

14.9

Persistent Systems Ltd.

IT

8,949

23

21.4

Source:5paisa Research, BSE

Kaveri Seeds:

Kaveri Seeds is one of India's leading seed producers, with a broad product portfolio that includes hybrids for cotton, corn, paddy, bajra, sunflower, sorghum and various vegetables. In addition, in its Microteck division, Kaveri markets micronutrients and organic biopesticides.

Quess Corp:

Quess Corp (erstwhile IKYA Human Capital Solutions) is one of India’s leading integrated providers of business services. Quess is focussed on emerging as the preferred business function outsourcing partner for enterprise customers across a wide range of industries. Quess’ service & product offerings are currently grouped under three operating segments: Work Force Management, Operating Asset Management and Global Technology Solutions. 

Sudarshan Chemical Industries:

Sudarshan Chemical Industries (SCIL) has grown to become India’s largest and the world’s fourth-largest manufacturer of colour pigments. Its estimated market share in India stands at ~35%. The company’s product portfolio comprises organic, inorganic and effect pigments serving four main end-uses: coatings, plastics, inks and cosmetics.

Heidelberg cement India Ltd.

Heidelberg cement India Ltd (HCIL) is a subsidiary of Germany based Heidelberg Cement, the world’s third largest cement producer. HCIL’s clinker plants are located in Madhya Pradesh and Karnataka and its cement grinding units are located in Madhya Pradesh, Uttar Pradesh and Karnataka. Current cement grinding capacity of HCIL is 5.4mtpa (2.1mtpa in Damoh, 2.7mtpa in Jhansi and 0.6mtpa in Ammasandra).

Persistent Systems Ltd.

Persistent Systems is a technology services company. The company’s focus is on helping clients build and manage software-driven businesses. Its business strategy is aligned around four key areas: 1) Digital: Bringing together their technology partner ecosystem, solutions and a unique architecture to enable enterprises with digital transformation; 2) Alliance: Focus on the long-standing and multi-dimensional relationship between PSYS and IBM; 3) Services: Focus on services for software and product development including an agile and experience design; 4) Accelerite: Focus on products that include business-critical infrastructure software for enterprises, telecom operators and the public sector.
Next Article

Which mid cap and small cap stocks to invest in for expected Multi-Cap rebalancing?

best multi cap mutual funds
by Nikita Bhoota 17/09/2020

Market regulator SEBI on Friday i.e September 11, 2020 has revised asset allocation norms for multi-cap equity mutual fund schemes. According to the revised rules, multi-cap mutual funds will have to invest at least 75% of their total asset under management (AUM) in equity & equity related instruments versus the earlier threshold of 65% of the total AUM. The market regulator also mandated multi-cap funds to invest at least 25% in each small-cap, mid-cap and large-cap stocks. So, if a multi-cap scheme of a fund house has an AUM of Rs 10,000 crore, it will have to invest at least Rs 2,500 crore each in the three categories of stocks. According to earlier rule, multi-cap funds had freedom to invest across sectors and market capitalizations. SEBI has directed to abide by the revised rules by January 2021.

Data sourced from media reports shows at present the multi-cap fund (AUM of ~Rs1.5tn) holdings are tilted towards large cap stocks (~73% of AUM as of Aug-2020), So it is widely projected that the mutual funds would have to rebalance the portfolios by increasing allocation to midcap stocks (~17% of AUM as of Aug-2020) and small cap stocks (~6% of AUM as on Aug-2020). However, the clarification issued by SEBI (SEBI Clarification Circular) on Sunday evening also points out that portfolio rebalancing is one of the options available to mutual funds and the MF could consider options like merging with existing schemes. The clarification also suggests that SEBI is open to inputs from MF industry on the revised rules for multi-cap funds. 
We have shortlisted some of the 5 mid cap and small cap stocks that can benefit if the portfolio rebalancing was to happen. 

5 Mid Cap Stock Recommendations

Company Sector ~Market Cap
(Rs Cr)
EPS CAGR (%)
FY20-22E
PE FY21E
Godrej Agrovet Ltd. Agriculture 10,190 31 30.1
Coromandel International Ltd. Agriculture 23,727 14 18.7
Ashok Leyland Auto 22,853 49 NA
Kajaria Ceramics Ltd. Building Material 8,270 8 45.2
Ipca Laboratories Ltd. Healthcare 27,214 27 25.1

Source:5paisa Research, BSE

Godrej Agrovet Ltd:
Godrej Agrovet (GAVL) is a diversified, research & development-focused agri-business company. It is one of the leading companies in the animal feed business and the market leader in the oil palm plantation industry in India. Additionally, it has a sizeable presence in agri-inputs (i.e. agrochemicals), dairy products, and processed poultry.

Coromandel International Ltd.
Coromandel is the flagship company of the Murugappa Group and operates in fertilisers and other agri-input segments. It is India's second-largest producer of phosphatic fertilisers and is particularly strong in the South-Indian states of Andhra Pradesh and Telangana. Coromandel has an installed capacity of nearly 3.5m tonne of fertilisers (22% of domestic production capacity) and also operates in the agrochemical, specialty nutrient and organic compost verticals.

Ashok Leyland:
Ashok Leyland (AL), part of the Hinduja Group, is one of India's leading manufacturers of commercial vehicles such as trucks, buses, tippers, trailers and Defence vehicles. It is the second-largest player in the medium & heavy trucks segment in India, with market share of ~33%. AL is one of the leading players in heavy buses with market share of ~43%. The company also manufactures and sells engines for industrial and marine applications, spare parts and special alloy castings.

Kajaria Ceramics Ltd.
Kajaria Ceramics is the largest manufacturer of ceramic and vitrified tiles in India. The company manufactures ceramic wall & floor tiles as well as glazed & polished vitrified tiles. It has also ventured into some allied segments (like bathware, plywood); albeit, these segments are still quite small at present, in terms of contribution to revenues and profits.

Ipca Laboratories Ltd.
Ipca Labs is a fully integrated pharmaceutical company producing branded and generic formulations, APIs and intermediates. The company has a strong position in the domestic market, mainly in cardiology, pain, anti-malarial/bacterial and anti-diabetics products. The company exports to 110 countries and is the ninth-largest pharma exporter from India, in terms of volume.

5 Small Cap Stock Recommendations

Company Sector ~Market Cap
(Rs Cr)
EPS CAGR (%)
FY20-22E
PE FY21E
Kaveri Seeds Agriculture 3467 17 10.9
Quess Corp Industrials 6,470 14 33.6
Sudarshan Chemical Industries Chemicals 3,258 26 27.2
Heidelberg cement India Ltd. Cement 4,268 13 14.9
Persistent Systems Ltd. IT 8,949 23 21.4

Kaveri Seeds:
Kaveri Seeds is one of India's leading seed producers, with a broad product portfolio that includes hybrids for cotton, corn, paddy, bajra, sunflower, sorghum and various vegetables. In addition, in its Microteck division, Kaveri markets micronutrients and organic biopesticides.

Quess Corp:
Quess Corp (erstwhile IKYA Human Capital Solutions) is one of India’s leading integrated providers of business services. Quess is focussed on emerging as the preferred business function outsourcing partner for enterprise customers across a wide range of industries. Quess’ service & product offerings are currently grouped under three operating segments: Work Force Management, Operating Asset Management and Global Technology Solutions. 

Sudarshan Chemical Industries:
Sudarshan Chemical Industries (SCIL) has grown to become India’s largest and the world’s fourth-largest manufacturer of colour pigments. Its estimated market share in India stands at ~35%. The company’s product portfolio comprises organic, inorganic and effect pigments serving four main end-uses: coatings, plastics, inks and cosmetics.

Heidelberg cement India Ltd.
Heidelberg cement India Ltd (HCIL) is a subsidiary of Germany based Heidelberg Cement, the world’s third largest cement producer. HCIL’s clinker plants are located in Madhya Pradesh and Karnataka and its cement grinding units are located in Madhya Pradesh, Uttar Pradesh and Karnataka. Current cement grinding capacity of HCIL is 5.4mtpa (2.1mtpa in Damoh, 2.7mtpa in Jhansi and 0.6mtpa in Ammasandra).

Persistent Systems Ltd.
Persistent Systems is a technology services company. The company’s focus is on helping clients build and manage software-driven businesses. Its business strategy is aligned around four key areas: 1) Digital: Bringing together their technology partner ecosystem, solutions and a unique architecture to enable enterprises with digital transformation; 2) Alliance: Focus on the long-standing and multi-dimensional relationship between PSYS and IBM; 3) Services: Focus on services for software and product development including an agile and experience design; 4) Accelerite: Focus on products that include business-critical infrastructure software for enterprises, telecom operators and the public sector.

Next Article

A Beginner’s Guide to Investing Internationally from India

International Investment
by Vested Team 20/09/2020

Ace investor & co-founder of First Global, Shankar Sharma’s global portfolio was up 70% in 2019. His Indian portfolio, by his own admission, didn’t do nearly as well. He attributed this performance to this strategy of diversifying across countries. “If you have single-country, single-asset exposure, you are fated to lose sooner or later, irrespective of what the government or fund managers tell you,” he says. In the post-Covid era, he’s gone to highlight how Indians must expand their horizons beyond domestic shores. “The Indian market has delivered zero, in fact, negative returns in dollar terms,” Sharma adds.

In 2020, Indians are now eyeing international investments in larger numbers than ever before. There are several factors fueling this interest. A number of US stocks, including Apple, Amazon, and Facebook, have exhibited steady upward growth, making them attractive alternatives to Indian stocks. In contrast, investing in the Indian economy has been a mixed experience in 2020 and prior. Even before the coronavirus pandemic, the International Monetary Fund (IMF) lowered India’s economic growth forecast from 6.1% to 4.8% for 2019-20. Naturally, the numbers became more concerning as markets tanked March onwards. Such developments, coupled with a broad increase in interest, are paving the way for international investments from the Indian investor community. If you’re looking to get started with investing internationally from India, here’s a handy guide covering the what, the why, and the how.

Why should you invest in US Stocks?
“What’s interesting about US stocks is that you not only get exposure to the United States but also to the world, as many companies have global operations but are listed there.”This statement from Viram Shah, co-founder and CEO of Vested Finance, highlights one of the major advantages provided by investment opportunities in the US market. Portfolio diversification is one of the many reasons why investing in US stocks is a helpful addition to your portfolio. US indices such as the NASDAQ and S&P 500 have very little correlation with Indian indices such as the Sensex – 0.36 over the past decade, to be precise. From a diversification perspective, this makes investing internationally an essential task for Indian investors.

vested graph 1

Figure 1: Dow Jones Industrial Index vs Sensex. Annual returns 2010-2019. Source: ET

Another advantage that the US stocks have over Indian stocks is the currency in which they trade. The US dollar is up 6% against the rupee this year alone. The US markets have also proved to be more stable than Indian markets in the long run.

And when you focus on returns, international investments typically outperforms domestic stocks investments. The DJIA has beaten the Sensex over 3-year, 5-year, and even 10-year periods.

Perhaps more importantly, despite this performance, the Dow Jones is at a lower price-to-earnings value (20.53) than the Sensex (25.01) as of Feb 2020. At the same time, dividend yield remains higher in US markets.

vested graph 2

Figure 2: Returns comparison between Dow Jones and Sensex (INR based), from January 2009 – Dec 2019

So, how can you get started?
How to start investing internationally from India
Investing in international markets may seem overwhelming at first. But it is 2020, and fortunately, the process has been significantly simplified for those who are keen on diversifying their portfolios. There are many ways by which you can go about investing internationally:

  • You can purchase mutual funds that invest in international stocks
  • You can invest in Exchange Traded Funds (ETFs) using an investing account. ETFs are different from mutual funds as they are listed and traded just like stocks and tend to have lower expense ratios
  • Or, you can directly invest in international stocks listed on international exchanges using dedicated platforms.

How to invest in US stocks with 5paisa
5paisa through Vested platform facilitates international investing by offering both direct investments in stocks and ETFs and investments through curated portfolios. Investors can open an account through a paperless process with no minimum balance and take advantage of commission-free investing. All they need to provide is their:

  1. PAN card number and copy, and
  2. Proof of address

Here’s how the two investment options work:

  • Direct investments by opening a US brokerage account: To facilitate direct investments, we offer a dedicated platform where Indian investors can directly purchase stocks and ETFs in the US markets. This method lowers overall costs for the investor, but funds must be wired to the US. The Liberalisation Remittance Scheme (LRS) allows this, with the annual upper limit capped at $250,000 per person. We also offer fractional investing capabilities, lowering the barrier of entry for many
  • Diversified investments into curated portfolios for varying risk profiles: Our platform, investors that want more advice on what to invest, can also invest in Vested’s proprietary curated portfolios. These portfolios are called Vests. Vests are curated for different risk profiles and are constructed with different themes in mind. Vests might be a great option for investors looking to expand their investments to international shores but wishing to retain a narrow focus on specific sectors or industries
vested 5paisa

How does Taxation work

International Exchange Traded Funds (ETFs) are treated as debt funds for taxation purposes. This means that to qualify as long-term holdings, you must keep them for three years. While the short-term capital gains tax rate is as per your applicable income tax slab, long-term capital gains tax is charged at 20% with indexation benefits.
For investors making direct investments in US markets, they are liable to pay taxes on both investment gains and dividend gains. Investment gains will be taxed in India only – where the tax liability is determined by the duration of their holdings. 24 months is the long-term capital gain threshold, with the rate of 20% with indexation benefit. Investments held less than 24 months will incur short-term capital gains tax, calculated according to applicable individual income tax slabs.

Dividends are taxed in the US at a flat rate of 25%. Thanks to the US and India’s Double Taxation Avoidance Agreement (DTAA) though, taxpayers can offset the income tax they’ve already paid in the US. Learn more about this topic here: how taxation works for Indians investing in US markets.

Investing Internationally from India: Closing Thoughts

International investments help you gain exposure to other markets. Geographical diversification can reduce country risk, including risk from negative events that might impact India’s domestic economy. Moreover, as mentioned earlier in this post, when you compare investing in Indian markets vs US markets, US stocks have historically exhibited lower volatility, higher returns, and higher international exposure.

Next Article

Here’s all You Need to Know About IPO Application Process

IPO
22/09/2020

Initial Public Offering (IPO) is the first time issue of shares to the public and listing of stock exchanges. It can be a Fresh Issue of shares, Offer for Sale by existing shareholders or a mixture of both. Application for subscribing for an IPO can be done through both Online & Offline modes.

How to apply for IPOs online?

If you want to apply for an IPO, you need the below:

* Demat account - To hold your shares

* Trading account - To sell your shares

* UPI ID - To block funds in your bank account

You can open demat account with any SEBI registered Depository Participant (DP). These DPs can be banks or brokers.

Key Steps to Apply for an IPO Online.

* Login to your trading platform and select the desired issue (company) in the Current IPO section.

* Enter the Number of lots and price at which you wish to apply for.

* Enter your UPI ID and click on submit. With this your bid will be placed with the exchange.

* You will receive a notification to block funds in your UPI app. Approve the block request.

* Upon the successful approval, the required amount will be blocked in your bank account.

* On allotment, the blocked amount will be deducted from your bank account and shares are credited into your Demat account. Any extra amount to the extent of shares applied but not allotted, will be unblocked by your bank.

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Check Glenmark Life Sciences IPO & Rolex Rings IPO and apply online through 5paisa

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How to apply for IPOs offline?

An offline application is made by submitting the filled-up application to the designated collection centre.

Fill in details like Name, PAN, Demat number, bid quantity, bid price and submit the ASBA application to the Self Certified Syndicate Banks (SCSB). The bank will upload the details of the application in the bidding platform. The onus is on you to ensure accurate details to avoid chances of rejection.

 

Check Out the List of Upcoming IPOs in 2021

 

Tips for making money in IPOs:

1. For retail Investors, in case of over subscription, allotment is done on a lottery basis. So, it is advisable to apply from multiple family accounts instead of more lots from single account.

2. In order to increase allotment chance, instead of select a lower price, it is advisable to place the IPO bid price at cut off, which signifies that you are ready to buy the stock at final decided price.

3. Grey market premium (GMP) is the premium for which people are ready to pay for buying the shares before even stock is listed on the exchange. High GMP signifies higher demand in the market and hence can give more listing gains.

All the required details are available in the Red herring prospectus. You are advised to read the risk factors thoroughly before applying.

Next Article

Mazagon Dock Shipbuilders Ltd IPO Note

Mazagon Dock Shipbuilders Ltd IPO Note
IPO
by Nikita Bhoota 29/09/2020

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.