8 Nov, 2008

 Asit C Mehta Investment Interrmediates Ltd has maintained a 'buy' recommendation on account of Bharati Shipyard's strong order book, to arrive at a target price of Rs 185, which is equivalent to a forward P/E of 6 times to its FY10E EPS (excluding subsidy).

Shipbuilding is affected by global slowdown although there exists replacement demand for offshore vessels, fleet owners may delay their investments in new ships due to the crisis.

BSL has an order book stretched till FY11 and the company's earnings will not be impacted. However, with the credit crisis, the brokerage expect's future order inflows to slow down.

Considering the outlook on future order inflows, Asit is lowering the target P/E multiple. At the current market price, the comapny is trading at an attractive P/E multiple of 3.2 times its FY09E earnings (excluding subsidy), and 2.4 times its FY10E earnings (excluding subsidy).

For Q2FY09, Bharati Shipyard Ltd's net sales increased to Rs 213.78 crore, from Rs 148.03 crore in Q2FY08, registering a growth of 44.4 per cent. Sales grew mainly due to the utilization of expanded capacities at its yards. For the first half FY09, the company registered sales of Rs 457.74 crore which is in line with brokerage estimates sales of Rs 1,010.88 crore for the whole year. Subsidy as a percentage of net sales is between 9%-10% for first half of FY09, as estimated.

EBIDTA excluding subsidy has increased from Rs 32.6 crore in Q2FY08 to Rs 42 crore in Q2FY09, registering a growth of 29 per cent growth. EBIDTA margins have fallen from 22 per cent in Q2FY08 to 19.6 per cent in Q2FY09 mainly on account of higher employee costs. For the first half of FY09, BSL registered EBIDTA margins of 19.5 per cent, which are better than our estimated margins of 19.1 per cent for whole year FY09E.

BSL's order book stands at Rs 48,300 crore and has not grown during this quarter. Order book execution pending, currently stands at 3.46 crore, as compared to Rs. 3.66bn as of Q1FY0