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Mazagon Dock Shipbuilders IPO opens today: Subscribe or avoid?

At the upper price band of Rs 145, Mazagon Dock issue is available at a P/E of 6.1x which is at a significant discount to its peers, Geojit Financial Services feels.

September 29, 2020 / 12:49 PM IST

State-owned defence company Mazagon Dock Shipbuilders opened its maiden public issue for subscription on September 29.

The price band has been fixed at Rs 135-145 per share for the issue which consists of an offer for sale of 3,05,99,017 equity shares by the government.

The issue will close on October 1. The company will raise nearly Rs 444 crore via public issue and all the money will go to the government as it is a part of government's divestment programme.

All brokerages recommend subscribing to the issue given a strong order book which gives long-term visibility of revenue growth, attractive dividend yield, healthy return on equity (RoE), debt-free status, superior infrastructure facilities, growing defence story in India and attractive valuations.

"Mazagon Dock being the only shipbuilder to have built destroyers and conventional submarines, it could have an edge in future orders. Considering the strong order book, superior infrastructure facilities, debt free status, one can expect better growth outlook for the company in the long run," said ICICI Direct which recommended subscribe on the issue with a view of listing gains.


Mazagon Dock Shipbuilders IPO: 10 key things you should know

Incorporated in 1934, Mumbai-headquartered Mazagon Dock Shipbuilders, a Mini-ratna-I' defence public sector undertaking under Ministry of Defence (MoD) with maximum capacity of around 40000 DWT, is engaged in construction, repair of warships and submarines for MoD. It is India's only shipyard to have built destroyers and conventional submarine for Indian Navy and one of the initial shipyards to manufacture corvettes in India.

The company primarily operates in two divisions A) shipbuilding under which it is currently building four P15 B destroyers, four P-17A stealth frigates and B) submarine & heavy engineering division under which it is currently building or in the process of delivering four Scorpene class submarine under transfer of technology from Naval group, France and a medium refit & life certification submarine.

At the upper price band of Rs 145, Mazagon Dock issue is available at a P/E of 6.1x which is at a significant discount to its peers, Geojit Financial Services feels.

Considering strong technological & execution capabilities, healthy order book and attractive dividend yield, the brokerage assigned a subscribe rating for this IPO and feels it is going to reap the benefits Atmanirbhar Bharat.

Angel Broking also feels the company's valuations are lower versus peers like Garden Reach Shipbuilders and Cochin Shipyard (trading at 12.2x and 6.6x of its FY20 earnings, respectively).

"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 the above positive factors, we recommend subscribe to the issue with a long-term horizon," it said.

Mazagon Dock has Rs 54,074 crore worth of orders as of July 2020 from its shipbuilding and submarine & heavy engineering segment, which comprises three major shipbuilding projects and two submarine projects, and provides long term revenue visibility.

Company expects to have a decent order pipeline in the next one to three years with several projects lined up from Indian Navy and Indian Coast Guard worth around between Rs 20,000 and Rs 30,000 crore.

Mazagon Dock believes it has the competitive advantage for mega projects like six P-75i conventional submarine project (around Rs 45,000 crore) and six new generation destroyers (around Rs 50,000 crore) to be finalised over the next three to four years.

Company's focus on indigenization under 'Make in India', 'Atmanirbhar Bharat', etc. with New Defence procurement policy 2020 will be a key positive for growth, Angel Broking feels.

Recently, the government has taken steps to ban 101 defence items, which clearly indicates government's focus on indigenization to promote and create big opportunities in Indian defence sector.

For FY18-20, its revenue grew at a CAGR of 6 percent while PAT de-grew by 2 percent CAGR. In FY20, Mazagon Dock reported PAT of Rs 477 crore on revenue of Rs 4,978 crore.

"We believe Mazagon Dock IPO offer gives investors an opportunity to play on Indian growing defence story allied with Make in India push. The company seems to be fairly and reasonably priced with something left on the table for listing gains," said Mehta Equities which also recommended investors to subscribe for listing gain.

Mazagon Dock has been paying dividend since last 15 years. AUM Capital, too, advised investors to subscribe the issue with long term view, while LKP Securities recommended investors to subscribe with a target of Rs 250 over a time horizon of 6 months.

As of now, Mazagon Dock has built 795 vessels, including 25 warships, 4 missile boats, 3 submarines, 6 Leander class frigates, 3 Godavari class frigates, 3 Shivalik class frigates, 3 corvettes, and 6 destroyers.

Company 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.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Sep 29, 2020 08:31 am
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