ABG Shipyard Ltd’s operating profit margin, including subsidy, for the quarter ended March fell by 4 percentage points to 17%, compared with the same period last year. That’s because the company had a higher subsidy element in last year’s March quarter. Adjusting for the subsidy, ABG Shipyard’s margins have shown improvement. Bharati Shipyard Ltd, too,has improved operating margins slightly, excluding the subsidy impact.
But that hasn’t really earned any brownie points from analysts tracking these two companies. Performance of both the companies at the net level is disappointing. ABG Shipyard’s net profit declined 23% and that’s despite the fact that interest expenses fell 53%, as the company repaid debt of Rs 500 crore during the year. Debt now stands at Rs 2,400 crore.
On the other hand, Bharati Shipyard’s net profit increased 7.5% as the company has booked substantially higher subsidy for the quarter. But the company’s interest cost has also risen sharply by about 300%, as debt increased to Rs 3,500 crore, mainly because of the acquisition of a substantial stake in Great Offshore Ltd, in which the company currently holds a 49% stake.
If it were not for the subsidy, Bharati Shipyard would have posted a net loss on account of higher interest costs. “On account of the mounting interest burden, the company reported a loss of Rs 27.3 crore, excluding subsidy,” wrote analysts from Prabhudas Lilladher Pvt. Ltd in their post-results note.
Another concern for Bharati Shipyard is that its order book pending execution has halved to Rs 1,000 crore compared with last year. That offers limited revenue visibility going forward.
In comparison, ABG Shipyard’s order book of about Rs 14,500 crore gives it a much better revenue visibility. While that augurs well, analysts are cautious on the execution front. According to an analyst, the construction of jack-up rigs for Essar Shipping is behind schedule by almost a year. Secondly, the already high order book may limit ABG Shipyard’s ability to take orders that require to be delivered in the next three years. That could constrain order inflows in the days to come.
However, ABG Shipyard has recently received industrial licences for design and construction of naval warships and naval support ships; this can help the company secure defence orders going ahead.
Since the beginning of this calendar year, Bharati Shipyard has underperformed the BSE-500 Index of the Bombay Stock Exchange, while ABG Shipyard hasperformed more or less in line with the index. From the current level, upsides appear limited.
Although ABG Shipyard is better placed in terms of revenue visibility, most of the positives are factored in the stock price. In Bharati Shipyard’s case, high debt and limited revenue visibility remain key overhangs on the scrip.
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