Issue Opens: 16th Sept
Issue Closes: 18th Sept
Price Band Rs.55 - Rs.60
Private sector ship building firm Pipavav Shipyard's initial public offer (IPO) will hit the capital market on September 16. PSL is currently in the completion stage of the Pipavav shipyard, located on the west coast of India.
Pipavav Shipyard is coming out in the primary market with 8.54 crore shares of Rs 10 each in the price band of Rs 55 to Rs 60. The IPO closes on September 18, 2009.
At the upper end of its price band, the company aims to generate over Rs 512 crore.
The issue is on a 100 per cent book building process. It plans to use the proceeds for the construction of shipbuilding facilities, repair and offshore business and for general corporate purposes.
Investment Rationale
1.Upon completion, PSL will have the largest dockyard in India, with a capacity to build and repair ships of up to 400,000 Dead Weight Tonnage (DWT).
2. PSL has firm orders for the construction of 10 Panamax bulk carriers of 74,500 DWT each along with options to construct additional Panamax vessels. They have also received
notification for construction of 12 OSVs.
3. The business size of PSL has enabled it to have a flexible product mix by providing the production capability to execute orders for the construction of a wide variety of ships ranging from VLCCs to OSVs as well as naval, coast guard and other specialty vessels such as LNG carriers.
4. Leverage the skill & experience of promoters.
5. PSL is located close to the offshore oil fields on the western coast of India and not too far from the Middle East. Due to its proximity to the Pipavav Port, PSL is benefited from the Pipavav Port’s infrastructure facilities.
Investment Concerns
1. Cyclical nature of the shipbuilding industry.
2. Rely on contract partners since PSL has no prior experience in the field.
3. Exchange rate fluctuations.
The company has a strong order book, but majority of its revenue will start flowing in FY 11.
PSL is available at a P/E of 8.6x and 9.3x at lower band & upper band respectively of its FY 11 estimated EPS of Rs. Rs.6.43.In the short term there does not seem to be much upside potential in the stock. The company will get revenues from the defence sector if it wins the orders it has bid for.
The long term investors can subscribe to the issue with a time horizon of three years to make substatial gains. Indian IPo market in general is not giving any listing gains at the moment.
JM Financial Consultants, Citigroup Global Markets India, Enam Securities and SBI Capital Markets are lead book managers of the issue.
Issue Snapshot
Issue Period: Sept 16 - Spet 18, 2009
Price Band Rs.55 - Rs.60
Issue Size Rs.470 - Rs.512 crore
Market Cap Rs.36,61 - Rs.3994 Crore
Issue Size 85,450,225 shares
Employees: 600,000 shares
QIB: 50,910,135 shares
Non-Institutional: 8,485,022 shares
Retail: 25,455,068 shares
Face Value: Rs.10
Book Value: Rs.18.85 as on Mar 31, 2009
Capital Structure:
Pre Issue Equity Rs.5,803 mn
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