Cochin Shipyard IPO – Ship it to Your Portfolio
Cochin Shipyard Ltd. is India’s largest public sector shipyard providing shipbuilding and repair services in defence and commercial sectors since over last four decades.
Investment Arguments
- A Solid Player in India’s Defence Sector with High Entry Barriers –
Cochin Shipyard is a well-run and well-managed company evident from the fact that it’s the most profitable player amongst its peers – Competitors are heavily debt ridden & quite a few peers like Reliance Defence, Bharti Defence& ABG Shipyard are loss making. Defence (navy & Coast Guard) & Commercial segments contributed to 85% & 15% of revenues respectively in FY17. The company can become a huge beneficiary of the Make in India theme by bagging more Defence orders. The company naturally enjoys formidable entry barriers – Setting up a dockyard entails large capex while catering to the defence sector entails competencies that cannot be developed so easily.
- Market Leader in Lucrative Ship-repair segment –
The company enjoys over 33% market share in the ship-repair market in India while the #2 player commands a distant ~20% market share. Ship repair is a small part of company’s business (comprising just 26% revenues in FY17) but is much more profitable than the ship-building segment (comprising 74% revenues in FY17). It is noteworthy to mention that Cochin Shipyard has been growing the ship-repair business north of 35% since the last 2 years. A larger share of ship-repair business could aid in improving the company’s margin profile.
- Robust Financials –
The 10 year revenue and profits CAGR has been recorded at 11% & 19% respectively. An order book of Rs. 3,000 crores provides reasonably good revenue visibility. Margins have expanded from 8% in FY07 to 18.4% in FY17. It commands a strong balance sheet position – negligible debt of Rs. 228 crores and strong cash balance of Rs. 2,000 crores as on FY17. The dividend payout has averaged at an attractive 29% since last 4 years.
Valuation & GreenEdge View
At the higher band of Rs. 432, the stock is valued at Rs. 18x FY17 earnings. Retail investors are entitled to an additional 5% discount too. Considering the revenue visibility, leadership position, strong financials and entry barriers enjoyed by the company, we recommend investors to subscribe to this issue.
Issue Details
| Issue Open Date | 1st Aug, Tue |
| Issue Close Date | 3rd Aug, Thurs |
| Issue Price (Rs.) | 424 to 432 |
| Market Lot | 30 (Retail investors should apply for 1 lot i.e. 30 shares only) |
| Issue Price for Retail (Rs.) | 411 (Discount of Rs. 21 offered to Retail investors) |
| Minimum Application Size for Retail (Rs.) | 12,330/- |