Cochin Shipyard Limited (CSL) - IPO Note

Nikita Boota

31 Jul 2017

Untitled Document

Issue Details

Issue Open

August 1,2017-August 3,2017

Price Band

Rs 424-Rs 432

Bid Lot

30 Equity shares

Face Value

Rs 10

Issue Type

100% Book building

Source: DRHP

% Shareholding

Pre IPO

Post IPO

Promoter

100.0

75.0

Public

0.0

25.0

Source: DRHP

Company Background

Cochin Shipyard Ltd (CSL) is the largest public sector shipyard in India in terms of dock capacity. The company has two docks – Dock 1 (Ship Repair Dock) and Dock 2 (Ship Building Dock) with a maximum capacity of 125,000 DWT and 110,000 DWT in FY17. CSL caters to clients engaged in the defence sector in India and in the commercial sector worldwide. In addition to shipbuilding and ship repairing, they also offer marine engineering training.

Object of the Issue

The offer consists of fresh issue of ~962 cr shares and an Offer for Sale (OFS) of up to 1.13 cr shares; out of which employee reservation is up to 8.24 lakh shares. At an upper price band, there is a discount of Rs 21 per share for employees and retail investors.

Investment Rationale

CSL has the largest ship repair capacity in the public sector while Reliance Defence being the largest repairer by capacity in private sector and in overall Indian ship repairing industry. However, CSL has the highest market share of 39% in revenue terms in the overall Indian repair industry as it has the necessary infrastructure and competencies that is reflected in its timely deliveries in the past decade.

CSL being a public sector shipyard is a likely beneficiary of gaining orders like Indigenous Aircraft Carrier (IAC) on nomination basis and benefiting from favorable working capital cycle as against other private shipyards. Reliance Defence has average working capital days for ~300 days, whereas for CSL it is ~100 days. In addition, CSL is debt free while private shipyards are posting losses owing to high interest obligations.

Currently, ship repair accounts for 26.4% of CSL’s overall revenue. Post expansion of building stepped’ dry dock, the company will be able to increase its number of ship repair vessels by 60-70% from current 80-100 vessels repaired in a year. The increase in capacity will improve the EBITDA margin as ship repair margin are almost twice of ship building.

CSL has a current order book of Rs 3000 cr in Ship building and Rs 370 cr in ship repair in FY17. As per media reports, the Indian Navy and Indian Coast Guard have plans to induce 60 and 80 ship/vessels each to reach a fleet of 200 from 140 and 120 ships /vessel at present. Continuous orders from the said clients and potential repair orders are expected to support the order book growth.

Key risk

The company derives ~85% of its revenue from top two customers namely the Indian Navy and the Indian Coast Guard. The customer’s decision to procure/repair vessels from other public/private sector shipyards can pose as a threat to the growth of the company. Further IAC forms significant portion of the company’s order book, any delay in delivery of the carriers will have an impact on reputation as well as revenues of the company.

Conclusion

At upper end of the price band of Rs 432, the issue is attractively priced at PE multiple of 18.8x its FY17 EPS on post IPO outstanding shares. Thus, we recommend SUBSCRIBING the issue.

Disclaimer: https://www.5paisa.com/research/disclaimer

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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

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Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

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To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Cochin Shipyard Limited (CSL) - IPO Note

Nikita Boota

31 Jul 2017

Untitled Document

Issue Details

Issue Open

August 1,2017-August 3,2017

Price Band

Rs 424-Rs 432

Bid Lot

30 Equity shares

Face Value

Rs 10

Issue Type

100% Book building

Source: DRHP

% Shareholding

Pre IPO

Post IPO

Promoter

100.0

75.0

Public

0.0

25.0

Source: DRHP

Company Background

Cochin Shipyard Ltd (CSL) is the largest public sector shipyard in India in terms of dock capacity. The company has two docks – Dock 1 (Ship Repair Dock) and Dock 2 (Ship Building Dock) with a maximum capacity of 125,000 DWT and 110,000 DWT in FY17. CSL caters to clients engaged in the defence sector in India and in the commercial sector worldwide. In addition to shipbuilding and ship repairing, they also offer marine engineering training.

Object of the Issue

The offer consists of fresh issue of ~962 cr shares and an Offer for Sale (OFS) of up to 1.13 cr shares; out of which employee reservation is up to 8.24 lakh shares. At an upper price band, there is a discount of Rs 21 per share for employees and retail investors.

Investment Rationale

CSL has the largest ship repair capacity in the public sector while Reliance Defence being the largest repairer by capacity in private sector and in overall Indian ship repairing industry. However, CSL has the highest market share of 39% in revenue terms in the overall Indian repair industry as it has the necessary infrastructure and competencies that is reflected in its timely deliveries in the past decade.

CSL being a public sector shipyard is a likely beneficiary of gaining orders like Indigenous Aircraft Carrier (IAC) on nomination basis and benefiting from favorable working capital cycle as against other private shipyards. Reliance Defence has average working capital days for ~300 days, whereas for CSL it is ~100 days. In addition, CSL is debt free while private shipyards are posting losses owing to high interest obligations.

Currently, ship repair accounts for 26.4% of CSL’s overall revenue. Post expansion of building stepped’ dry dock, the company will be able to increase its number of ship repair vessels by 60-70% from current 80-100 vessels repaired in a year. The increase in capacity will improve the EBITDA margin as ship repair margin are almost twice of ship building.

CSL has a current order book of Rs 3000 cr in Ship building and Rs 370 cr in ship repair in FY17. As per media reports, the Indian Navy and Indian Coast Guard have plans to induce 60 and 80 ship/vessels each to reach a fleet of 200 from 140 and 120 ships /vessel at present. Continuous orders from the said clients and potential repair orders are expected to support the order book growth.

Key risk

The company derives ~85% of its revenue from top two customers namely the Indian Navy and the Indian Coast Guard. The customer’s decision to procure/repair vessels from other public/private sector shipyards can pose as a threat to the growth of the company. Further IAC forms significant portion of the company’s order book, any delay in delivery of the carriers will have an impact on reputation as well as revenues of the company.

Conclusion

At upper end of the price band of Rs 432, the issue is attractively priced at PE multiple of 18.8x its FY17 EPS on post IPO outstanding shares. Thus, we recommend SUBSCRIBING the issue.

Disclaimer: https://www.5paisa.com/research/disclaimer

Have Referral Code?