Subscribe to Cochin Shipyard: Reliance securities
Reliance 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 31, 2017
Cochin Shipyard Ltd. (CSL) – a Miniratna company – is one of the largest PSU shipyard companies in India. Currently, it has two docks located adjacent to Cochin Port in West Coast of India: (1) Ship Repair Dock (1.25 lakh DWT) and (2) Shipbuilding Dock (1.10 lakh DWT). Further, it is in the process of setting up a new Dry Dock and an International Ship Repair Facility (ISRF), which will enable CSL to secure more projects in ensuing period. The Company gets many government orders on nomination basis like NBCC Ltd. Notably, CSL’s current order book stands at Rs33bn (1.6x FY17 revenue), which we believe will expand further in coming years owing to government’s strong endeavour to increase its defence production under “Make in India” initiative. Unlike other PSU shipyard companies, CSL has been profitable, as it has delivered a consistent performance with over 4% CAGR in earnings in last four years, which is commendable, in our view as the shipping industry witnessed multiple headwinds during this period.Outlook & Valuation
We admire CSL’s ability to stay afloat in the turbulent period without compromising on margins. Going forward, government’s endeavour to improve its defence strength in sea route and several initiatives under flagship “Make in India” programme will result in healthy orders for CSL, which will drive growth. At the upper price band, CSL trades at 18.8x FY17 EPS post dilution. Though it is difficult to compare it with peers as most of the listed peers are loss making, we believe the current valuations are not expensive given healthy return ratios and bright prospects. Further, price to book ratio after dilution stands at 1.9x, which is attractive in our view. Hence, we recommend SUBSCRIBE to the issue.
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