Cochin Shipyard IPO opens today, but recent results may not entice investors
The recent financial performance of Cochin Shipyard Ltd, while steady, may not be very enticing for investors. The company, whose initial public offering (IPO) opens today, has seen revenues expand 4.6% per annum on an average in the last three fiscal years (between FY14 and FY17). Net profit increased by 3.3% per annum.
The Cochin Shipyard IPO will see a public issue of 3.39 crore shares at a price band of Rs424-432 apiece.
The subdued performance reflects the lull in the shipbuilding industry, which generates three-fourth of Cochin Shipyard’s revenues. As international orders dried up, revenues in this segment more or less remained constant.
But ship repair is doing well and its share in revenues is rising. Last fiscal, 26% of the revenues came from ship repair. However, the scope for drastic improvement in near future is limited as the segment is working at full capacity now.
The company has an order book of Rs2,936 crore, but it is only about 1.4 times the previous fiscal year’s revenues and the contracts have varied gestation periods. The company is trying to alter this through new capacities. It is building a new ship repair facility and a dry dock. Part of the IPO proceeds will fund these facilities.
Post the capex, Cochin Shipyard’s ship repair capacity will rise by 60-70% which should lift the segment’s revenues by a similar percentage given the robust prospects.
The new dry dock will help Cochin Shipyard handle longer vessels and help build and repair jack-up rigs. But given the under-utilization of the existing ship building facilities and weak international business, the new dock can have limited impact on revenue growth, unless the shipbuilding business sees noticeable improvement.
The new facilities are expected to take 2-3 years to be built. Meanwhile, the company will have to make do with the existing facilities. The management plans to take up more profitable orders in the ship building business to better leverage the situation. But that can lift revenue growth only by a certain extent.
That said, given government ownership and long expertise in the defence business, Cochin Shipyard is well placed to capture public sector orders. While that should provide the company with base orders and hold it in good stead, a growth kicker can come in only when the international or the defence business sees renewed ordering or after the new ship repair facility comes on stream.