The demand from investors for Mazagon Dock Shipbuilders, the major state-owned defence company in India, has been strong so far, as the issue fully subscribed on the first day itself on September 29 and its price has been doubled in the grey market.
The company is available at Rs 125-145 per share premium over the issue price band of Rs 135-145 per share, the people familiar with the IPO developments told Moneycontrol.
That meant it is at around 100 percent premium over the upper price band of the issue, which is on expected lines given the strong orderbook, attractive valuations, healthy return on equity (RoE), highest dividend yield.
If the said premium stays till listing, then it could be the fourth company to have around 100 percent premium over issue price, this year.
Earlier Happiest Minds Technologies and Route Mobile listed with over 100 percent rise, while experts feel Chemcon Speciality Chemicals is also expected to see the same percentage rise on October 1.
Mazagon Dock Shipbuilders IPO opens today: Subscribe or avoid?
"In terms of valuations, Mazagon Dock's pre-issue P/E works out to 6.1x FY20 earnings (at the upper end of the issue price band), which is lower versus peers like Garden Reach Shipbuilders and Cochin Shipyard (trading at 12.2x and 6.6x of its FY20 earnings, respectively)," Angel Broking said.
Further, Mazagon Dock has healthy RoE of around 16 percent coupled with highest dividend yield (7.4 percent) and higher cash on balance sheet among its peers. Hence, considering these positive factors, Angel Broking has recommended subscribe to the issue with a long-term horizon.
Mazagon Dock Shipbuilders IPO Opens Today: 10 key things you should know
The Rs 444-crore public issue has fully subscribed on the first day itself given the strong retail demand. The government will divest 15 percent stake in the company via public issue.
Mazagon Dock Shipbuilders is India's leading defence public sector undertaking shipyard under the Ministry of Defence (MoD). Mazagon Dock is primarily engaged in constructing and repairing warships and submarines for MoD and other types of vessels i.e. cargo ships, multipurpose support vessels, barges and border outposts, tugs, dredgers, water tankers, etc. for commercial clients.
Currently, company has strong order book of around Rs 54,074 crore that provides revenue visibility for long-term. Order book comprises of four P-15 B destroyers, four P-17A stealth frigates, repair and refit of a ship, four Scorpene class submarines and one medium refit and life certification of a submarine.
Mazagon Dock intends to foray into segments like exporting its products, focus on ship repair facility and also enhancing infrastructure & manufacturing capacity that would help the company to diversify its revenue in future, said Angel Broking.