Nirmal Bang has come out with its report on Cochin Shipyard. The research firm has recommended to “Subscribe ” the IPO in its research report as on August 01, 2017
Cochin Shipyard, incorporated on March 29, 1972, is a wholly-owned GoI company. It was conferred the 'Miniratna' status in 2008, by the Department of Public Enterprises, GoI. Cochin Shipyard is the largest public sector shipyard in India in terms of dock capacity. As of Jan, 2017, Cochin shipyard has 2 docks used for ship repair and shipbuilding. It caters to clients engaged in the defence sector in India and in the commercial sector worldwide. In FY17, revenue from defence sector was around 84.6% to total revenue. Key clients include the Indian Navy and the Indian Coast Guard, Clipper Group, SCI, NPCC, Vroon, SIGBA AS, DGLL.Valuation and Recommendation
CSL enjoys status of only shipyard building aircraft carrier which will place CSL in select category of shipyard in world. Apart from existing order of aircraft carrier it has opened up immense opportunity of new business. The govt initiative of Make in India in defence sector also augur well for CSL as its revenue contribution from defence is 84.6% in FY17. The ship repair business with high margin business profile is growing faster than the ship building business leading to improvement in margin. Company has healthy order of 2936cr + Phase III of aircraft carrier order. Apart from this, the company has healthy pipe line of new order. The aggressive expansion plan will support the growth of the company in long run. Over, FY15- FY17 the company sales has grown at a CAGR of 14.1% however Ebitda has grown at a CAGR of 106.4% and PAT at a CAGR of 112.3%. Company enjoys ROE of 15.4%. On the valuation front, at the given upper price band of issue of Rs 432, Cochin shipyard is offered at PE of 18.8x its FY17 EPS of Rs 23 and FY17 EV / Ebitda of 10.5x which is lower to its peer. We recommend subscribing to the issue.
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