Subscribe to Cochin Shipyard: HEM Securities
HEM Securities has come out with its report on Cochin Shipyard. The research firm has recommended to “Subscribe ” the IPO in its research report as on July 28, 2017
Co is the largest public sector shipyard in India in terms of dock capacity, as of March 31, 2015, according to the CRISIL Report. Co cater to clients engaged in the defence sector in India and clients engaged in the commercial sector worldwide. In addition to shipbuilding and ship repair, co also offer marine engineering training. As of May 31, 2017, co have two docks – dock number one, primarily used for ship repair (“Ship Repair Dock”) and dock number two, primarily used for shipbuilding (“Shipbuilding Dock”). Co’s Ship Repair Dock is one of the largest in India and enables co to accommodate vessels with a maximum capacity of 125,000 DWT (Source: CRISIL Report). Co’s Shipbuilding Dock can accommodate vessels with a maximum capacity of 110,000 DWT (Source: CRISIL Report). Co is in the process of constructing a new dock, a ‘stepped’ dry dock (“Dry Dock”). Co is also in the process of setting up an International Ship Repair Facility (“ISRF”), which includes setting up a shiplift and transfer system. Co is a wholly-owned GoI company. Co’s shipyard is strategically located along the west coast of India, midway on the main sea route connecting Europe, West Asia and the Pacific Rim, a busy international maritime route. In addition, co’s shipyard is located close to the Kochi port as well as to offshore oil fields on the western coast of India and relatively close to the Middle East.Reasons to Subscribe:
Co’s top customers include the Indian Navy and the Indian Coast Guard. These top two customers together accounted for 82.43%, 89.92% and 84.57% of co’s revenue from operations in Fiscals 2015, 2016 and 2017, respectively. As of March 31, 2017, co’s shipbuilding order book position in terms of revenue to be recognised in future is Rs 2936 Cr . As of March 31, 2017, the ship repair order book position in terms of revenue to be recognised in future (only orders where value of outstanding order is greater than Rs 50.00 million) is Rs 3,698.32 million. Co have received the ship repair orders (greater than Rs 50.00 million) after March 31, 2017 aggregating to Rs 333.41 million from its key clients.
At price of Rs 424-432/share, co is bringing the issue at p/e multi-ple of 18.88 on post issue FY17 eps of Rs 22.89.
With decent fundamentals, co’s valuation look reasonable at cur-rent level. Hence we recommend “Subscribe” on issue.
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