Company Profile – Pipavav shipyard project was initially conceived and executed by SKIL Infrastructure Limited. (SKIL) In September 2007, Punj Lloyd Limited acquired a significant stake in the Company. Now, both SKIL (PLL) and PLL (PLL), are co-promoters.
Pipavav Shipyard Ltd. (PSL), is India’s largest shipyard, with unparalleled state-of-the-art facilities. PSL will be able to construct, fabricate, and repair a variety of vessels in the defense, merchant, and offshore sectors upon completion. We remain skeptical about the global shipbuilding sector. We believe that PSL with its excellent facilities and ability to handle large-sized ships is the best place among its Indian counterparts to take advantage of the enormous opportunity (at Rs150 to 200 bn per annum) in India’s defense sector. Offshore fabrication and ship repair are also lucrative opportunities. These could experience slow ramp-ups and initial teething problems. PSL has an Rs45.0 billion order book, but only 52% are firm. There are orders worth Rs18.0 billion that are under negotiation or arbitration. PSL’s operations have been in operation since April 2009 (FY10). We can now value PSL based on EV/Order books. PSL will command a multiple of 1.1X EV/Order books at the higher end (Rs60/Share), which is much higher than its peers ABG Shipyard (0.2) and Bharati Shipyard (0.3).
Some reasons to invest which are in favor of Pipavav:
1. Strong Order book position
2. SEZ approval to the subsidiary of Pipavav.
3. Professionally qualified and experienced management.
4. Strategic tie-up with Punj Lloyd Ltd.
Some of the negative weighing reasons:
1. Absence of track record in shipbuilding.
2. Project risk associated with new projects.
3. The company has a history of corporate debt restructuring because some of its earlier plans had gone awry.
4. Concentration of order book to the main line shipping sector.
Facts and figures:
Pipavav IPO Open and Close Dates
Price Band: Pipavav IPO’s price range is between Rs. 55 to Rs.60
IPO Grading: The IPO was graded by CARE at 3 out of 5 This indicates average fundamentals.
There are risks involved in
1. Pipavav does not have an operating history so it is difficult to predict how it will perform in the future.
2. Pipavav does not have any previous experience in either shipbuilding, repair, or offshore activities.
3. The proceeds from this IPO are crucial to mobilize funds for the construction of the Pipavav shipyard. Therefore, the stock market conditions and other factors will be important. The initial success of the company is affected by these factors.
The IPO’s primary objective is to raise funds for the construction of the shipyard. A sum of Rs. 4,550 million has been earmarked. The IPO funds also have the goal of generating a margin for working capital. A sum of Rs. The same has been allocated to 2450 million.
BizAddict verdict Pipavav Shipyard’s initial public offering (IPO), of Rs 513 crore was subscribed within the first hour. With 782 acres of land, the company is the second-largest dock in the world after Hyundai. The dry dock measures 662 meters long and 65 meters wide. The waterfront spans 4.2 kilometers. As world-class facilities are not readily available in India, France, Germany, and the UK, 85 percent of the country’s Defence requirements are being met by countries such as Russia, France, and Germany.
The company will be focusing its efforts on ONGC, Navy, and global jobs. These have much higher margins than the traditional ones. The project’s total cost and facilities are estimated at Rs 2,995 cr. This is being financed with a term loan of Rs 1 312 crores, a net worth of Rs 1,260 crore, and an IPO proposal of Rs 500 crore. This gives rise to a debt-equity ratio (0:75%) which is reasonable and in line with the comfort level. It would take at most five years to replicate similar facilities. This includes obtaining all permits, which would provide a competitive advantage for the company. The IPO is more expensive than the company’s domestic competitors, ABG Shipyard and Bharati Shipyard. These companies have a diversified order book with strong revenue and operating visibility for the next two-three year and higher Return Ratios. Although the company has a strong order list, most of its revenue will come in FY 11. We estimate that revenue for FY 11 will be approximately Rs 35,000 million. All these factors being considered, we recommend that you ‘Subscribe” for the long term to the issue.