Kotak Securities research report on ABG Shipyard“ABG Shipyard, poor shipbuilding market for the last 3 years has culminated into forced debt structuring of ~Rs 110bn (total including bank guarantees) for ABG. The company is currently facing serious cash flow problems with deferral of deliveries, rising raw material cost, halted capex and invoking of bank guarantees (due to order cancellations). We estimate the company to have stopped taking fresh orders and cancellations to have happened from the current order book of Rs 158 bn. The company has also posted poor numbers for the last 5 quarters, including losses for the last 3 quarters.” “Currently the shipbuilding market is precariously placed with: 1) Demand levels falling below the construction capacity: 2) Contract cancellations and 3) Lack of financing options for buyers. Profitability of ABG would be under pressure due to poor shipbuilding market, high interest cost and increasing contingent liabilities. We estimate the company to report losses over FY14 to FY16E. We value ABG based on 0.75x P/B FY16E at 50 % discount to big yards in Korea and Japan. We recommend SELL with a decreased TP of Rs 208 (earlier Rs 278),” says Kotak Securities research report.
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