Cochin Shipyard is the largest public sector shipyard in India in terms of dock capacity, according to CRISIL Report. The company caters to clients engaged in the defense sector in India and customers involved in the commercial sector worldwide. In addition to shipbuilding and ship repair, it also offers marine engineering training. As of January 31, 2017, Cochin Shipyard has two docks – dock number one, primarily used for ship repair (“Ship Repair Dock”) and dock number two, mostly used for shipbuilding (“Shipbuilding Dock”). The Ship Repair Dock is one of the largest in India and enables it to accommodate vessels with a maximum capacity of 125,000 DWT (Dead Weight Tonnage). The Shipbuilding Dock can accommodate vessels with a maximum capacity of 110,000 DWT.
Cochin Shipyard is in the process of constructing a new dock, a ‘stepped’ dry dock (“Dry Dock”). This stepped dock will enable longer vessels to fill the length of the dock and wider, shorter ships and rigs to be built or repaired at the wider part. The company is also in the process of setting up an International Ship Repair Facility (“ISRF”), which includes setting up a ship lift and transfer system.
In the last two decades, Cochin Shipyard has built and delivered vessels across broad classifications including bulk carriers, tankers, Platform Supply Vessels (“PSVs”), Anchor Handling Tug Supply vessels (“AHTSs”), barges, bollard pull tugs, passenger ships and Fast Patrol Vessels (“FPVs”). The company is currently building India’s first Indigenous Aircraft Carrier (“IAC”) for the Indian Navy. It has also grown its ship repair operations and is the only commercial shipyard to have undertaken repair work of Indian Navy’s aircraft carriers, the INS Viraat and INS Vikramaditya.
Issue Opens on: 01 August 2017
Issue Closes on: 03 August 2017
Issue Type: Book Built Issue IPO
Issue Size: 3,39,84,000 Equity Shares
Face Value: Rs 10 per Equity Share
Issue Price: Rs.424 – Rs.432 per Equity Share (QIB & NII)
Discounted PB: Rs.403 – Rs.411 per Equity Share (RII & Employees)
Market Lot: 30 shares
Listing proposed at: NSE, BSE
IPO Schedule :
31st July – Anchor List
01st Aug (Tuesday)– Offer Opens
03rd Aug(Thursday) – Offer Closes
08th Aug – Finalisation of Basis of Allotment
09th Aug – Unblocking of ASBA
10th Aug – Credit to Demat Accounts
11th Aug( Friday) – Listing on NSE & BSE
Allocation to QIB : 50%
Allocation to NII :15%
Allocation to RIII : 35%
Object of the Issue
1. Setting up of a new dry dock within the existing premises of our Company (“Dry Dock ”);
2. Setting up of an international ship repair facility at Cochin Port Trust area (“ISRF ”); and
3. General corporate purposes.
TOP 10 SHAREHOLDER
Outlook of the Firm:-
- The largest Public Sector Shipyards Caters;
- Offering diversified products and services maintaining quality;
- Maintain a robust and strong customer base;
- Competitive cost structure and efficient operations;
- Competitive financial records and performance;
- Skillful and experienced management and leadership team.
Reasons not to invest in Cochin Shipyard
There are outstanding legal and tax proceedings involving its Company. Further, in one of the outstanding legal proceedings, the Chairman and Managing Director of its Company has also been made a performa party. Any adverse decision in such proceedings may expose us to liabilities or penalties and may adversely affect its business, financial condition, results of operations and cash flows.
Worldwide demand and pricing in the commercial shipbuilding industry are highly dependent upon global economic conditions. If the global economy fails to grow at an adequate pace, it may adversely impact the commercial ship building industry which may negatively affect its business, financial condition and growth prospects.
Loss of any of its major customers or a reduction in their orders, or failure to succeed in tendering for shipbuilding or ship repair projects for the Indian Navy in the future, despite its previous track record will have a material adverse impact on its business, financial condition, results of operations and growth prospects as company are dependent on a few of its major customers.
The company cannot assure you that its proposed Dry Dock or International Ship Repair Facility will become operational as scheduled, or at all, or operate as efficiently as planned. If company are unable to commission its new proposed dry dock or the new ship repair facility in a timely manner or with out cost overruns, its business, results of operations and financial condition may be adversely affected.
HUDCO IPO Review and Market premium
The cost estimates by the Dry Dock Project Consultant and the ISRF Project Consultant have been derived from and benchmarked against similar maritime and dry dock/shipyard projects carried out by the Dry Dock Project Consultant and the ISRF Project Consultant respectively in recent years and may not be accurate.
The company could incur losses under its fixed price contracts as a result of cost overruns, delays in delivery or failures to meet contract specifications which may have an adverse effect on its business, financial condition and results of operations.
The companies entire business operations are based out of a single shipyard at Kochi. The loss of, or shutdown of, its operations at its shipyard in Kochi will have a material dverse effect on its business, financial condition and results of operations.
Reasons to invest in Cochin Shipyard
Build a strong order book by bidding vigorously for projects to be awarded by the Indian PSUs and defence sector pursuant to ‘Make in India’ initiative.
Continue to enhance its construction quality and delivery time and enhance its price competitiveness in order to increase its market share.
Continue to leverage its market position and its relationships with customers, suppliers and other business partners to support its growth and improve its competitiveness.
One of India’s leading public sector shipyards catering to both commercial clients as well as clients engaged in the defence sector with a multitude of offerings for a broad range of vessels across life cycles.
Modern facilities and infrastructure and integrated capabilities to deliver quality products and services.
Order book with a strong customer base of reputable ship owners and marquee clients.
Competitive cost structure and efficient operations.
Led by a dedicated board, long serving and experienced senior management backed by a strong pool of experienced professionals Continuous profits leading to robust financial performance.
Strategic positional advantage
India’s strategic position along the east bound and west bound international trade routes offers an opportunity to cater to vessels plying on these routes. A main container route connecting America and Europe to the East passes very close to the Indian coastline presenting a major opportunity for repairs.
Cochin Shipyard is in the process of adding one more dry dock of size 310 x 75/60 x 13 M, which will enable it to undertake repairs of vessels like LNG carriers, semisubmersibles, jack up rigs, and drill ships.
Full commissioning of the international ship repairing facility at Cochin port with state of the art ship repair facilities will enable Cochin to position itself as a major ship repair hub. The target is to enhance Cochin Shipyard’s ship – repair capability by 70 – 90 ships per annum.
Phase 3 and 4 of development (the expansion and up gradation of infrastructure at Goa Shipyard) are under progress. This development is expected to enhance its capabilities for the repair of ships for clients engage in the defence sector.
The construction of a floating dry dock facility at V O Chidambaranar port is in the feasibility study phase.
This facility would enhance its capacity to carry out under water repairs of tugs, launch boats and other watercrafts.
The project to modernise ship repairing facilities at Kolkata dock is expected to improve its capabilities to service both Indian and foreign vessels. The project is still in the planning stages.
There is a proposal underway for refurbishment of the existing Hughes dry dock at Mumbai port. This project aims to provide adequate wet berth facilities to complement dry docks to cater to afloat repairs.
In order to create adequate dry docking facilities and maintenance capacities for vessels plying through Andaman and Nicobar waters, a project to create a ship repair facility (ship lift/slipway) capable of handling 5000 DWT vessels is underway and is in the pre -feasibility stage, according to a report published at the Maritime India Summit 2016.
For the year ended March 2017, the company reported revenue of Rs. 2208.5 crores. Profit figure for the year stood at Rs.312.1 for the year ended March 2017. Basic EPS for the year ending March 2017 is Rs. 27.56 whereas last three years weighted EPS comes to be Rs. 23.38.
Company revenue grew by 3% to Rs 2059.49 crore for the year ended March 2017. But its operating profit margin declined by 120 bps to 18.5% and thus the operating profit was down by 3% to Rs 380.20 crore. Eventually gained by higher other income and lower interest, the net profit was up by 7% to Rs 311.12 crore. The EPS for FY17 works out to Rs 23.0 on post issue equity.
The offer price of Rs 424-432 discounts the FY17 EPS by 18.4 times on lower price band and 18.8 times on upper price band. The listed comparable peer Reliance Defence Engineering has reported a net loss for FY17 and thus its EPS was in negative.
The EV/order book of CSL is at 1.2 times. The EV/sales and EV/EBITDA was 1.9 times and 7.6 times compared to 23.9 times and 183.8 times that of Reliance Defence Engineering.
Grey market premium
Grey market premium is Rs.160/-, Kostak is Rs. 1100/-,
Conclusion: Investors may consider investment for medium to long term