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Monday, June 13, 2011

Pipavav Shipyard Limited : A major Defence sector player !!!!

Scrip Code: 533107 / PIPAVAVYD
CMP:  Rs. 80.70; Buy at Rs. 78 - Rs. 80 levels.
Short term Target: Rs. 85, LT – Rs. 100 ; Market Cap: Rs. 5,372.99 cr ; 52 Week High/Low: Rs. 119.70 / Rs. 62.00
Total Shares: 66,57,98,388 shares; Promoters : 29,95,76,180 shares –45.00 %; Total Public holding : 36,62,22,208 shares – 55.00 %; Book Value: Rs. 24.81; Face Value: Rs. 10; EPS: Rs. 0.60; Div: --- ;P/E: 134.5 times; Ind P/E: 13.17; EV/EBITDA: 110.08.
Total Debt: Rs. 1,329.59 cr; Enterprise Value: Rs. 6,702.59 cr. 

Pipavav Shipyard Limited promoted by SKIL Infrastructure was formerly known as Pipavav Ship Dismantling and Engineering Limited and changed its name to Pipavav Shipyard Limited in April 2005. Pipavav Shipyard Limited was incorporated in 1997 and is based in Mumbai, India, company engages in the defense shipbuilding, and construction of offshore oil and gas assets, as well as provision of commercial shipbuilding and repairs, and heavy engineering services in India. Pipavav is the only private shipyard in India to have license to produce frontline warships from the Govt. of India giving it significant opportunities in the defence space. The company also offers very large crude carriers, suezmax tankers, aframax tankers, capesize bulk carriers, panamax bulk carriers and tankers, handymax and handysize bulk carriers and tankers, and product and chemical tankers; and specialized vessels, such as LNG carriers, LPG carriers, reefers, containerships, offshore support vessels, ferries, and dredgers. It also provides offshore platforms, which include rigs, jackets, and single buoy mooring systems; naval vessels; and ship repair services, such as refit/dry docking, a-float repair, and conversions. Pipavav Shipyard (PSL) is the largest shipyard in India and the 5th largest in the world in terms of its size (400000 dwt). Pipavav’s dry dock capacity is larger than top 5 yards in India put together.

Investment Rationale:
Pipavav recently signed a contract with the Ministry of Defence for construction of 5 naval gunboats worth Rs. 3000 cr. The company has also been active in signing MoU’s with international defence majors such as SAAB Dynamics, Northrop Grumman, and Babcock Group UK which will make the Company’s position as leader in the defence segment. The company is also planning to rename itself Pipavav Defence and Engineering Company Ltd. to highlight its objective to become a major defence player. Company has a strong and diversified order book of Rs. 6300 crore which is expected to result in CAGR of 48.8% over FY10-FY13.
The parent company of Pipavav Shipyard Ltd, SKIL Infrastructure promoted by Nikhil Gandhi, primarily is an infrastructure development company, with interests in shipyard, special economic zones, free zones, logistics, port, education and defence sectors, filed its drafted documents on 7th June 2011, to raise Rs. 1,125 Cr through IPO. SKIL Infra controls 43.14 % (a 28,72,26,686 shares) in Pipavav Shipyard and 21.02 % (a 40,00,000 shares) stake in Everon Education. Proceeds from the IPO will used to retire its debts of Rs. 800 Cr & will set aside Rs. 150 cr to acquire companies in education, infrastructure & defence sectors.  As of March 31, SKIL Infra had total debt of Rs. 1351 cr, excluding vehicle loans.

Investment concerns:
There was a delay of 15 months in the construction of the shipyard and the facility became fully operational only in December 2010 with the installation of Goliath cranes. The delay in construction of the shipyard has, in turn, led to significant delay in the delivery schedule of vessels. Although Pipavav has a strong and diversified order book valued at Rs. 6300 crore, the first deliveries of panamax and offshore vessels is likely only from Q2FY12 onwards i.e. delay of 18 and 3 months respectively. Pipavav is in a growth phase so a significant premium over global shipyards would not be justified until execution improves.

Outlook & Valuation:
Company posted 18 % YoY revenue growth in Q4FY11, after excluding subsidy of Rs. 75 cr and trade sales of Rs. 257 cr. The Company received a new order of Rs.3000 cr taking the total order book to Rs. 6300 cr. EBIDTA for the year turned green to Rs. 170 cr with margins at 20%. PAT at Rs. 44 cr. The order inflows and recent initiatives of the company give confidence that the company is on track to become a major defence player. At the CMP of Rs.80.70, Pipavav is trading at 19.6 x FY13E EPS and 2.55 x FY13E P/BV. In my view it can be a Bought with a price target of Rs. 100.50/share valuing the company at 11.3x FY13E EV/EBIDTA comparing it to defence player.

SALES (Rs. crs) 629.4 882.7 1,598.5 2,073.7
NET PROFIT (Rs. crs) - 48.2 - 1.7 126.1 269.6
EPS (Rs.) -- -- 1.9 4.1
PE (x) -- -- 41.7 19.5
P/BV (x) 3.2 3.1 2.9 2.5
EV/EBITDA (x) -- 80.3 20.611.3
ROCE (%) --2.510.217.8
RONW (%) ----6.912.8

I would buy PIPAVAV SHIPYARD LTD with the price target of Rs. 85 in short term. For long term I would be looking at a target price of Rs. 100. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.


  1. It is a high debt company and almost 90 % of the promoter stake is pledged . Then what makes it an investible grade stock ?

  2. HI READERS !!
    Pipavav Shipyard today said its board has approved the issue of about 2.52 crore convertible warrants to its promoter, SKIL Infrastructure, which will lead to the infusion of nearly Rs 250 crore into the company.
    The company today posted a net loss of Rs 9.78 crore for the first quarter ended June 30, 2010. It had registered a profit of Rs 1.66 crore during the same period in 2009-10.
    Pipavav Defence and Offshore Engineering Company Limited (formerly Pipavav Shipyard) said its Board has approved issue of securities worth Rs 81.90 crore to ace investor Rakesh Jhunjhunwala, his wife Rekha Jhunjhunwala and his close associate Utpal Sheth.The securities amount to 1,05,00,000 warrants. Rakesh Jhunjhunwala and his wife would be alloted 50,00,000 warrants each, while Utpal Sheth will get 5,00,000 warrants.Besides this, the company Board also approved issue of 1 crore warrants, worth Rs 78 crore to its promoters Grevek Investments and Finance Pvt Ltd, the filing further said.
    Each Warrant, issued at a price of Rs 78, is convertible into one fully paid-up equity share of Rs 10 each of the company, at any time within 18 months from the date of allotment.
    At present, the promoter group, including SKIL Infrastructure and SKIL Shipyard Holdings, holds 45 % stake in Pipavav, or 29.83 crore shares, in the company, of which 99.6 % is being pledged with financial institutions.
    FII's hold 8.55 % stake in the company, while domestic institutions stake stands at 11.56 %

    In June, SKIL Infrastructure --the promoter group of Pipavav-- had filed its draft red herring prospectus (DRHP) with market regulator Sebi for its initial public offer (IPO) through which it aims to raise Rs 1,125 crore.

    PIPAVAV's FIRST SHIP SAILS, After the delay of over 2 years, which resulted in order cancellation & price cuts, Pipavav Defence & offshore Engineering company Ltd will deliver its first ship on NOV 21, 2011. The 225 meter long and 32.3 meter wide dry bulk carrier of 75,000 dead weight tonne is the largest ever built by in Indian Shipyard, and will be handed over to Pipavav's first client GOLDEN OCEAN GROUP LTD of Bermuda.

  4. HI FRIENDS !!!
    Pipavav Defence and Offshore Engineering Company will raise upto Rs 900 crore by issuing 8.19 crore shares on a preferential basis to a foreign strategic investor at Rs 110/Share. Without divulging the name of the investor, the company said that the aforesaid investment will be a long term strategic investment in the company.
    The investor is a leading and extremely reputed global conglomerate with strong interest in defence sector, will initially subscribe to 5% of the paid-up capital of the company and within specified time will increase its holding in the company up to 10% of the paid-up capital,” the company stated in filing and further said that the investor will bring in critical technology required for manufacture of complex and critical equipments, systems required by armed forces i.e. Navy, Army and Air force.
    The investor will also have a right to nominate one director on the Board of the company. Meanwhile, the board also okayed increase in the authorised share capital from Rs 800 crore to Rs 1,000 crore.

    At present, the promoter group, including SKIL Infrastructure and SKIL Shipyard Holdings, holds 45% stake in Pipavav, or 29.83 crore shares in the company, of which 99.6% is being pledged with financial institutions. Foreign institutional investors hold 8.55% stake in the company while domestic institution own 11.56%.

  5. Pipavav has forayed into defence segment by signing a contract with Indian Navy for the construction of 5 NOPVs for Rs2.974Cr.
    It has signed a protocol with a company controlled by Russian Ministry of Defence for a potential contract of $2 Bn.
    Apart from this, it is acquiring 51% stake in Bengaluru based Conceptia Software Technologies Pvt Ltd - a ship design, engineering and consulting firm.


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