Garden Reach Shipbuilders IPO Details, Analysis, Subscription & Discussion

Garden Reach Shipbuilders IPO Issue Details:

IPO date:                  24 Sep – 1 Oct 2019
Issue Size:                344 Cr
Offer Price:              Rs 114 – Rs 118 Per Equity Share
Market Lot:              120 Shares & multiples
Exchange Listing:   BSE, NSE

Note: A discount of Rs 5 per equity share is offered to applications in retail and employee quota.

IPO Timelines (tentative dates):

Allotment & refund:    03 Oct
Credit to Demat:           03 Oct
Listing on Exchange:   05 Oct

Company Promoters:  The president of India acting through the Ministry of Defence.

Objective of the Issue: To carry out the disinvestment of 25% selling shares of shareholders

IPO Registrar: Alankit Assignments limited

Company Overview

Incorporated in 1934, Garden Reach Shipbuilders is a Govt. Mini Ratna-Category I shipbuilding company in India under the administrative control of the MoD (Ministry of Defence) and primarily adhere to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. In addition to ship and warship building capabilities, the company is also engaged in engineering and engine production activities. The shipbuilding division contributes a significant majority of our revenue (95%) from operations.

The company website: http://grse.in/

Garden Reach Shipbuilders IPO Analysis

Financial Performance:

garden-reach-shipyards-ipo-financials

Company category:  Cyclical

Company Strength:

  • Built India’s first indigenous warship–the INS Ajay, in the year 1961
  • The company has undertaken modernization of its infrastructure (a new integrated shipbuilding facility)
  • The company has a dedicated Central Design Office (“CDO”) undertaking design and research and development, which comprises of a highly skilled workforce of one hundred members, the majority of whom are engineers qualified from IIT and other premier institutes
  • The MoD has given the highest priority to Indigenously Designed, Developed and Manufactured (“IDDM”) products for capital procurement. The company has made significant progress in the indigenization of products in terms of the value of production.
  • The company has been credited with many firsts in the Indian shipbuilding industry.
  • Best Performing Shipyard Award‘ for 4 consecutive years from 2011 to 2014. Also, bagged ‘Best In-house Design Effort’ on 2017 for Mauritius CGS Barracuda among others.
  • Strong order book of around 20,000 Cr, the lowest bidder for few new projects.

Company Risks:

  • Past financial performance does not look rewarding. Low-profit margin (Return on net worth) is more concern.
  • The company could incur losses under fixed-price contracts as a result of cost overruns, delays in delivery (like delayed delivery in 2017) or failures to meet contract specifications
  • Unanticipated increases in labour, raw material (Steel), subcontracting and overhead costs
  • The GoI has significant influence over actions which may restrict the ability to manage the business.
  • Company’s business, in terms of both revenue and expenses, is cyclical in nature. The shipbuilding projects have a typical order-to-delivery period of anywhere from twenty-three (23) to sixty-six (66) months.
  • A 250 tonne Goliath Crane (book value of Goliath Crane ₹880.21 million ) at Main Works Unit recently collapsed due to near cyclonic storm in Kolkata.
  • The proceeds from this Offer will not be available to the company (only Offer for sale(OFS))
  • The global shipbuilding market is expected to turn around in 2021 driven by demand.
  • The total shipbuilding capacity in India has expanded at a CAGR of just 2.8% between FY2011 and FY2017
  • The Government has undertaken new measures to encourage private sector participation in the execution of defence orders.

Peer Comparison:

Cochin Shipyard Limited subsidiary of GoI under Ministry of Shipping is a near-peer having the largest vessels building facility in India, undertaking a rigid expansion of a new dockyard and ship repair facility, higher net margin, uptrend financial and P/E around 15 is much better than P/E 16.53 of Garden Reach Shipbuilders.

Analysis Conclusion

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Though strong order book and getting modernization of shipbuilding infrastructure taking place, current risks to strengths of Garden Reach Shipyards are not in favour of investment. Risks such as poor financial performance (low margin), delayed deliveries in past which incurred losses, Cyclical business, GoI control over business, only Offer for sale issue and P/E more than peer makes this IPO unattractive.

Moreover, Current secondary market bearish sentiment, lack of Grey Market Premium (GMP) interest makes this IPO “AVOID” as of now.

Garden Reach Shipbuilders IPO subscription status

garden-reach-shipyards-ipo-subscription

Abbreviations

EPS – Earning per share
P/E – Price to Earning
RoE – Return on Equity
QIB – Qualified Institutional Buyer
NII – Non-Institutional Investors
RII – Retail Individual Investor

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