Pipavav Defence drops after govt puts Mazagon JV on hold

Pipavav Defence drops after govt puts Mazagon JV on hold

Mumbai: Shares in Pipavav Defence and Offshore Engineering Co fell 5% in morning trades on Tuesday after defence ministry decided to put on hold a joint venture between the private shipbuilder and state-run Mazagon Dock to build warships and submarines.

The ministry had put the deal on ice following reports of lack of transparency in the deal.

Pipavav, which according to its website has the largest shipyard in India, would have been able to execute a chunk of Mazagon’s $21 billion orderbook, through the joint venture.

But protests from private sector competitors over alleged lack of transparency in the selection process, forced the government to put the JV on ice.

Pipavav competes with engineering conglomerate Larsen & Toubro , ABG Shipyard and Bharati Shipyard for defence contracts among others.

“This development was expected, it was an extremely large JV and there was really no clarity as to what the procedure followed was," said a sector analyst who declined to be named.

Pipavav, which is building capacity by adding a dry dock adjacent to the existing facility on the south western coast of Gujarat, had recently changed its name from Pipavav Shipyard to better reflect its focus on India’s defence sector.

The firm has an orderbook of about $1.5 billion, including about $660 million from the Indian Navy, and has strategic tie-ups with foreign partners including SAAB Dynamics, Northrop Grumman and UK’s Babcock Group for defence production.

“As far as we are concerned, its a completely transparent and exhaustive process which was followed," Nikhil Gandhi, chairman of Pipavav Defence told news channel CNBC TV 18.

“If anybody complains, I think it’s the government’s job to look at the whole process once again which I don’t think should take a long time...we have waited for 8 months and we probably will wait for a few more weeks," he said.

Nonetheless, the Pipavav stock fell 5% on Tuesday to a intra-day low of Rs77.05 and were trading at Rs77.8, still down 4.25% at 11:02 am.

The announcement by the defence ministry was made after market hours on Monday.

“There was an issue regarding transparency. You don’t know whether there would be a relook at the whole thing and how long it will remain in limbo. In view of that, we have seen a correction in Pipavav," said Ambareesh Baliga, chief operating officer at investment consultants Way2Wealth.

“It is possible that we could see the stock at lower levels. The downside could be around Rs68".

Pipavav shares surged nearly 12% on 12 September when the deal was first announced, but have fallen almost 11% since then till Monday’s close.