Buy Cochin Shipyard; target of Rs 725: ICICI Direct
ICICI Direct is bullish on Cochin Shipyard has recommended Buy rating on the stock with a target price of Rs 725 in its research report dated October 10, 2017.
ICICI Direct's research report on Cochin Shipyard
Cochin Shipyard (CSL), a public sector enterprise, is one of the most stable companies in the Indian shipbuilding and ship repair sector. Over the years, the company has emerged as a premier player in the Indian shipbuilding segment with expertise in design, engineering and project implementation. CSL is also a market leader in the Indian ship repair segment with a market share of ~39% and has undertaken repairs of most complex ships of the country. As on FY17, shipbuilding constitutes 74% of the topline while ship repair comprises the remaining 26%. We believe CSL’s strong order book (Rs 2,856 crore) plus L1 status of Rs 5400 crore, bidding pipeline (~Rs 11900 crore), core competency in both shipbuilding & ship repair (especially defence), debt-free status, best-in-class working capital cycle, reliability in execution and being a natural beneficiary of large & critical government projects place it in a sweet spot.
CSL enjoys strong competitive advantage due to its large dry dock capacity. This leads to large defence vessels like aircraft carriers coming only to CSL for its repairs/ refits. CSL is also building a new larger size shipbuilding and ship repair facility at a cost of Rs 2,768 crore. This new capacity is likely to enable the company to build larger ships and repair more vessels. With newer capacity, healthy order pipeline and strong execution capabilities, we believe CSL will clock revenue, EBITDA and PAT CAGR of 17.5%, 13.8% and 8.1%, respectively, in F17-20E. We value CSL at 25x FY19E earnings for existing business (Rs 655/share) plus 0.2x (Rs 26/share) and 0.6x (Rs 44/share) for its planned capex in shipbuilding and ship repair segment, respectively, to arrive at SOTP value of Rs 725/ share.
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