Cochin Shipyard hits record high; ICICIdirect starts coverage with Buy on orderbook
Cochin Shipyard is a market leader in the Indian ship repair segment with a market share of around 39 percent and has undertaken repairs of most complex ships of the country.
Cochin Shipyard share price rallied 3.5 percent intraday to hit a fresh record high of Rs 592.20 Wednesday, continuing previous day's rally after large order from Indian Navy. In previous session, the stock ended with 11 percent gains.
ICICI Securities has initiated coverage with a buy call on the stock and sees 27 percent upside at Rs 725 per share in next 12-15 months, citing strong orderbook.
"We believe Cochin Shipyard's strong order book (Rs 2,856 crore) plus L1 status of Rs 5400 crore, bidding pipeline (around Rs 11,900 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," the research house said.
The company is consciously improving its business mix by increasing the share of ship-repairs orders (2x profitable than shipbuilding business) in its order book.
ICICIdirect said the company is also likely to receive order for phase III of IAC, which is likely to be around Rs 10,900 crore. It believes these orders give strong revenue visibility to Cochin Shipyard till FY23.
It further said even during turbulent times in the global shipbuilding history, CSL has delivered topline, bottomline growth of 11.1 percent, 18.7 percent CAGR, respectively, in FY07-17.
Cochin Shipyard, 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.
It is also a market leader in the Indian ship repair segment with a market share of around 39 percent and has undertaken repairs of most complex ships of the country. As on FY17, shipbuilding constitutes 74 percent of the topline while ship repair comprises the remaining 26 percent.
With newer capacity, healthy order pipeline and strong execution capabilities, ICICIdirect believes the company will clock revenue, EBITDA and PAT CAGR of 17.5 percent, 13.8 percent and 8.1 percent, respectively, in FY17-20.
The company enjoys strong competitive advantage due to its large dry dock capacity. This leads to large defence vessels like aircraft carriers coming only to Cochin Shipyard for its repairs/ refits.
Cochin Shipyard 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, the brokerage house said.
Cochin Shipyard has a strong balance sheet with debt of Rs 123 crore and cash of Rs 1,600 crore.
With capex of Rs 2,800 crore over the next three years (FY18-21) and superior return profile (average return on equities, return on capital employed of 15.5 percent, 16.5 percent, respectively, in FY12-17), ICICIdirect believes Cochin Shipyard is a quality play.
On Tuesday, the company emerged as the L1 bidder for 16 X ASW SWC project for the Indian Navy. The contract include eight vessels at a cost of about Rs 5400 crore, which is expected to be concluded with the Ministry of Defence after due process.At 11:03 hours IST, the stock price was quoting at Rs 583.75, up Rs 11.35, or 1.98 percent on the BSE.