| Company Profile: Pipavav Shipyard project was | | | | hard therefore to judge how well it would do in the |
| originally conceived and implemented by SKIL | | | | future. |
| Infrastructure Limited (SKIL).In September 2007, Punj | | | | 2. Pipavav has no prior experience in ship building or |
| Lloyd Limited (PLL) acquired a substantial stake in the | | | | repair or offshore activities. |
| Company, and now, both SKIL and PLL are | | | | 3. There is a large dependence on the proceeds of |
| co-promoters of the company. | | | | this IPO itself to mobilize funds and proceed with the |
| Pipavav Shipyard Ltd (PSL) is setting up India's largest | | | | construction of the Pipavav Shipyard therefore the |
| shipyard with unmatched state-of-the art facilities. On | | | | general stock market conditions etc. influence the |
| completion, PSL will be able to construct, fabricate | | | | initial success of the company. |
| and repair a range of vessels in the merchant, | | | | Objective of the IPO: |
| offshore and defence sectors. We maintain a | | | | The primary purpose of the IPO is to mobilize funds |
| negative outlook on the global shipbuilding industry. | | | | for construction of the shipyard and a sum of |
| However, we believe that PSL, with its world-class | | | | Rs.4,550 million has been earmarked for the same. |
| facilities and capability to handle large sized vessels, is | | | | Another important objective of the IPO funds are to |
| best placed amongst its Indian counterparts to tap | | | | generate margin for working capital and a sum of Rs. |
| the huge opportunity (at Rs150-200 bn pa) in the | | | | 2450 million has been earmarked for the same. |
| Indian defence sector. Further, offshore fabrication | | | | BizAddict verdict: Pipavav Shipyard's Rs 513 crore |
| and ship repair also present a lucrative opportunity. | | | | initial public offering (IPO) was fully subscribed in the |
| However, these could witness slow ramp up and initial | | | | very first hour of its first day of subscription. The |
| teething troubles. Only 52% of PSL's Rs45.0 bn order | | | | company has second largest dock in the world, after |
| book is firm, with orders worth Rs18.0 bn under | | | | Hyundai, with the company having 782 acres of land, |
| negotiation or arbitration. Since PSL has recently | | | | of which 498 acres have been developed, with 662 |
| commenced operations in FY10 (Apr'09), we can | | | | meters in length and 65 meters in the width of dry |
| value PSL on EV/Order book. At the higher end of | | | | dock, with waterfront length of 4.2 kms. Presently, |
| the band (Rs60/Share), PSL shall command an EV | | | | 85% of the country's Defence needs are met from |
| Order book multiple of 1.1X, much higher than peers | | | | countries like Russia, France, Germany, UK and Italy, |
| ABG Shipyard (0.2X) and Bharati Shipyard (0.3X). | | | | as world class facilities are not available, with |
| Some reasons to invest which are in favour of | | | | Mazgaon Dock, Goa Shipyard and Kolkatta Dock, |
| Pipavav: | | | | presently catering to Indian Navy and Ministry of |
| 1. Strong Order book position | | | | Defence. |
| 2. SEZ approval to the subsidiary of Pipavav. | | | | So, the company would be focusing on Navy, ONGC |
| 3. Professionally qualified and experienced | | | | and global jobs, which has much higher margins, then |
| management. | | | | the conventional ones. The total facilities and cost of |
| 4. Strategic tie up with Punj Lloyd Ltd. | | | | the project is estimated at Rs 2,995 crore, which is |
| Some of the negatively weighing reasons: | | | | being financed by the term loan of Rs 1,312 crore, |
| 1. Absence of track record in shipbuilding. | | | | present net worth of Rs 1,260 crore and proposed |
| 2. Project risk associated with new projects. | | | | IPO of Rs 500 crore. This results in a debt equity |
| 3. The company has a history of corporate debt | | | | ratio of 0:75:1 which can be considered quite |
| restructuring because some of its earlier plans had | | | | reasonable and within the comfort levels. To replicate |
| gone awry. | | | | the similar facilities, it would take at least 5 years, |
| 4. Concentration of order book to the main line | | | | including obtaining all permissions, which would give a |
| shipping sector. | | | | first mover advantage to the company. The IPO is |
| Some facts and figures: | | | | expensive compared to the company's domestic |
| Open and Close Dates: Pipavav IPO opens on 16th | | | | peers, ABG and Bharati Shipyard, which have a |
| September 2009 and closes on 18th September | | | | diversified Order Book with strong Revenue and |
| 2009. | | | | Operating visibility over the next two-three years |
| Price Band: The price band of Pipavav IPO has been | | | | and higher Return Ratios. The company has a strong |
| fixed between Rs. 55 and Rs.60. | | | | order book, but majority of its revenue will be |
| IPO Grading: The IPO has been graded 3 out of 5 by | | | | received in FY 11. Taking that into consideration, we |
| CARE. This denotes average fundamentals. | | | | estimate revenue in FY 11 to be around Rs 35,000 |
| Risks involved: | | | | million. Taking all these factors into concern we |
| 1. Pipavav has no operating history and it becomes | | | | recommend to 'Subscribe' for long term to the issue. |