ABOUT THE SECTOR :- Global seaborne trade increased by 2.1% to 10,048 million tonnes in 2015. Dry bulk cargo comprised the largest share at 54%. Developing economies( which includes India) accounted for the largest share of seaborne trade, in volume terms, at an estimated 60%.
ABOUT THE COMPANY :- CS is the largest public sector shipyard in India & perhaps the only profitable shipyard. It caters to clients engaged in the defence sector and clients engaged in the commercial sector worldwide. In addition to shipbuilding and ship repair, it also offers marine engineering training. As of January 31, 2017, it has two docks .Dock number one is primarily used for ship repair and Dock number two, is primarily used for shipbuilding transfer.
Basic EPS for 2014-15 Rs. 6.12
Basic EPS for 2015-16 Rs. 25.75
Basic EPS for 2016-17 Rs. 27.56
The Company has posted profits continuously in the last five Fiscals. Its total revenues and PAT has increased in Fiscal 2016 at a CAGR of 9.25% and 16.47%, respectively.
Additionally, it has continuously delivered positive RoE margins over the last four Fiscals.
CS paid dividends to its shareholders at rates of 15%, 15%, 15%, 15% and 76.50% in Fiscals 2012, 2013, 2014, 2015 and 2016. It has strong liquidity position in terms of total cash of Rs 21,191.54 million as of January 31, 2017.
Cochin Shipyard has about 2000 crores of its of cash and equivalents on its books. It is deploying most of this money and a large chunk of its IPO proceeds (Rs 672.5 crores) for the construction of a dry dock and a ship repair facility. This combined amount at about 2700 crores is 35 times its five year average annual operating cash flows. If this bet goes awry, the company stands to a lose great deal.
The shipbuilding sector is in poor shape with many of Cochin’s private sector listed peers such as Reliance Defence, ABG Shipyard and Bharati Defence and Engineering struggling to stay afloat. A cyclical revival when the new facilities go live will give investors a substantial payoff but this may not materialise. The projects themselves, as is common with government works can get delayed or exceed their cost estimates.
Where the money will go ?
Roughly 67% of IPO proceeds (984 crores) will be used for building a dry dock, a ship repair facility and general corporate purposes.
The balance 33% (484 crores) will go to the Government of India. The Government’s stake will fall from 100% to 75%.
To be split among investors.
15% of the IPO is being offered to HNIs and 35% is being offered in the retail category.
A discount of Rs 21 (about 5% of the issue price) per share will be given to retail investors.
To those who are tracking GMP trends : It is expected that the GMP trend which is at Rs 181 has little room of ending lower. It is only expected to edge higher post application closure. Rational – lower FY 17 P/E at 18.8X Vs an industry average of 27.65X.
Expecting Cochin Shipyard Ltd to list with the following price targets :
- With Conservative risk : Rs 550
- With Moderate risk : Rs 599
- With Aggressive risk : Rs 669