Cochin Shipyard IPO oversubscribed 76 times on final day

The IPO consists of a fresh issue of 2.2656 crore shares and an offer for sale of 1.1328 crore shares by The President of India. The issue will constitute 25 percent of the post issue paid-up equity share capital.

The largest public sector shipyard company will receive Rs 978.74 crore through the fresh issue of shares. It will utilise fresh issue proceeds for setting up of a new dry dock within the existing premises (around Rs 443 crore); setting up of an international ship repair facility at Cochin Port Trust area (around Rs 229.5 crore); and general corporate purposes.

It is a part of divestment programme announced by the government in Budget.

Cochin Shipyard caters to clients engaged in defence sector in India and clients engaged in commercial sector worldwide. In addition to shipbuilding and ship repair, it also offers marine engineering training.

SBI Capital Markets, Edelweiss Financial Services and JM Financial Institutional Securities are the book running lead managers to the issue.

4:41 pm 4-star rating: The issue has been offered in a price band of Rs 424 to 432 per equity share. At present total equity share is 11.33 crore and EPS is Rs 27 per share and with fresh issue of 2.26 crore total number of equity share will be 13.60 crore and adjusted EPS is Rs 23 per share at the upper price band of Rs 432 the stock is available at Adjusted P/E of 19 (x) based on FY17 annualized EPS. Arihant Capital Markets has given a “4-star” rating for the issue

4:30 pm Subscription: The public issue has oversubscribed 75.92 times, with receiving bids for 258 crore equity shares against IPO size of 3.39 crore shares, as per data available on the exchange.

4:15 pm HEM Securities said Cochin Shipyard top customers include the Indian Navy and the Indian Coast Guard. These top two customers together accounted for a majority share of company'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 2,936 crores. At price of Rs 424-432/share, co is bringing the issue at P/E multiple of 18.88 on post issue FY17 EPS of Rs 22.89.

With decent fundamentals, company’s valuation looks reasonable at cur-rent level. Hence we recommend “Subscribe” on the issue.

4:00 pm Subscription: The public issue has oversubscribed 75.89 times, with receiving bids for 257.89 crore equity shares against IPO size of 3.39 crore shares, as per data available on the exchange.

The reserved portion of qualified institutional investors oversubscribed 63.52 times while the portion meant for non-institutional investors saw a subscription of 288.87 times and retail 7.64 times.

3:59 pm Reliance Securities said that it admires Cochin Shipyard Ltd (CSL’s) ability to stay afloat in the turbulent period without compromising on margins.

Going forward, government’s endeavor 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,” it said.

Further, price to book ratio after dilution stands at 1.9x, which is attractive in our view. Hence, Reliance Securities recommend ‘subscribe’ to the issue.

3:45 pm Cochin Shipyard's public issue has oversubscribed 72.5 times, with receiving bids for 246.36 crore equity shares against IPO size of 3.39 crore shares, as per data available on the exchange.

3:30 pm Subscription: The public issue has oversubscribed 61.39 times, with receiving bids for 208.63 crore equity shares against IPO size of 3.39 crore shares, as per data available on the exchange.

3:29 pm A sensible price tag: At the upper end of the IPO price band of Rs 424-432 (5 percent discount to retail) the company will have a market capitalisation of Rs 5,845 crore. Excluding cash (Rs 1,600 crore and Rs 979 crore from IPO proceeds) market capitalisation comes to Rs 3,250 crore, which is about 8 times its EBIDTA of FY17. This is quite reasonable considering the potential for growth.

During the last decade (2007-2017), its sales and profits have grown at CAGR (compounded annual growth rate) of 11.1 percent and 19 percent, respectively. Growth in the next decade is expected to be higher considering the increasing scale and size of the opportunity.

One needs to factor the high return ratios and margins (Operating margin at 27 percent) that the business has delivered. On a net worth of Rs 337 (excluding cash), the core business reported an EBIDTA of Rs 377 crore. Even after accounting for the tax, return on equity works out to 75-78 percent, which is quite high and shows the inherent strength of its core business.

3:15 pm Subscription: Cochin Shipyard's public issue has oversubscribed 55.35 times, with receiving bids for 188 crore equity shares against IPO size of 3.39 crore shares, as per data available on the exchange.

The reserved portion of qualified institutional investors oversubscribed 48.06 times, followed by non-institutional investors 200.94 times and retail 7.26 times.

3:00 pm Repair business: Repair business (enjoys 40 percent market share) is fast growing with high capital turn and significantly higher margins. The size of opportunity is now pegged at around Rs 2,500 crore (current revenue Rs 544 crore) over the next 3-4 years. It has been rejecting several orders due to capacity constraints.

The company is now setting up new ship repair facility, which would enable a turnaround of 140 vessels in a year as against 80 vessels currently. Considering the high margin and RoE, this business will boost growth as well as return ratios for the company.

2:45 pm Dominant player: The current shipbuilding facility comprises of 2 dry docks of 255 meters having a capacity of 110000 DWT (Dead Weight Tonne). It is now building additional dry docks of 310 meters, which can built large sized vessels like Aframax or the Capesize ships. This should enable the company to build larger vessels for the India Navy like aircraft carriers.

It is already working on phase-II of its aircraft carrier INS Vikrant, a project worth Rs 20,000 crore. The new facility (to be operational in 30 months) would strengthen its execution capability. It has an order book of Rs 3,000 crore (sales Rs 2,200 crore), which will further grow as it has also placed bids for projects worth Rs 12,000 crore. That apart, it is also looking at phase III of INS Vikrant. The order book does not include the much larger phase III work. Once complete, it will pave the way for the second indigenous air craft carrier.

2:16 pm IPO Subscription: The public issue has oversubscribed 26.27 times, with receiving bids for 89.26 crore equity shares against IPO size of 3.39 crore shares, as per data available on the exchange.

2:15 pm Cost advantages: The company enjoys cost advantage given the fully-depreciated integrated ship building facility. Replacing these assets would be costly. That apart, the business enjoys huge entry barriers and has high switching costs especially, since the key customer is from defence, thereby, protecting the long-term economic interest of the business.

Moreover, it is further enhancing its (moat) capabilities with the bigger scale of operations, investing in new capabilities and optimising resources.

2:01 pm Subscription: The issue has oversubscribed 16 times.

2:00 pm Cash level: Cochin Shipyard prefers to keep at least 50 percent of sales in cash. Moreover, instead of showing aggression, it has always chosen to remain rational about what it can deliver, given the resources at its disposal. The company has seen several industry cycles and keeps its focus only on profitable projects with a tight control over working capital, a key to survival in this business.

1:50 pm The public issue has oversubscribed 14.54 times, with receiving bids for 49.40 crore equity shares against IPO size of 3.39 crore shares, as per data available on the exchange.

1:47 pm Revenues: The 55-year old Cochin Shipyard derives 82 percent of its revenues from shipbuilding while the remaining comes from ship repairs. While it also builds ships for private clients, 80 percent of the orders comes from defence. Among private clients, it has delivered repeat orders to some clients in the US, Europe and Gulf countries.

1:40 pm IPO Update: The initial public offering of Cochin Shipyard has received overwhelming response from investors on the last day for subscription.

The public issue has oversubscribed 11.45 times, with receiving bids for 38.92 crore equity shares against IPO size of 3.39 crore shares, as per data available on the exchange.

The reserved portion of qualified institutional investors oversubscribed 8.14 times, followed by non-institutional investors 3.25 times and retail 5.71 times.

1:00 pm Issue details: State-run Cochin Shipyard targets to raise up to Rs 1,468 crore through its share sale offer. The price band for public issue of 3.3984 crore equity shares is fixed at Rs 424-432 per share.

The IPO consists of a fresh issue of 2.2656 crore shares and an offer for sale of 1.1328 crore shares by The President of India. The issue will constitute 25 percent of the post issue paid-up equity share capital.