Pipavav Shipyard: superior infrastructure but execution is key

Pipavav Shipyard: superior infrastructure but execution is key

The execution capability of Pipavav Shipyard Ltd is a metric that investors are closely watching given the company’s limited track record in the space. Last week, on 12 June, Pipavav announced the launch of two Panamax bulk carriers for the Golden Ocean group.

The delivery of the vessels would take some more time, that’s after the sea trial (the testing phase of a vessel). Though it is a positive development, there has been a lot of delay in the execution.

The company attributes the execution delay to the lack of availability of Chinese workers who were supposed to install two Goliath cranes at their shipyard. Goliath cranes facilitate easier assembling of ship modules.

Also See Delayed Delivery (PDF)

Pipavav Shipyard is the largest shipyard in terms of capacity in India and caters to the defence, offshore, marine and engineering segments.

The company has an order book of around $1.5 billion, which offers good revenue visibility. Around half the order book comprises export orders, 42% comes from defence and the remaining are offshore orders.

Analysts maintain that Pipavav is a strong contender for defence orders going forward considering that the company has got a warship production licence from the Indian government.

The licence allows them to build five warships in a year. That augurs well as the outlook for commercial ship building companies is muted currently. In the recent past, ABG Shipyard Ltd, too, received industrial licences for design and construction of naval warships and naval support ships.

As far as its financial performance is concerned, Pipavav has shown improvement for the year ending March. On a consolidated basis, the company reported a net profit of 44 crore, compared with a loss of 46 crore in the previous year. That was helped by cost control and improvement in efficiency. In fiscal 2011, the company’s revenue increased by 37% on a year-on-year basis to 860 crore.

In the past one year, the stock has underperformed the BSE 200 index on the Bombay Stock Exchange.

Though the company has world-class infrastructure to boast of, analysts maintain that Pipavav’s valuations are rich when compared with global established shipyard companies. Further, Pipavav is yet to prove itself on the execution front.

Those factors are likely to limit near-term upsides for the stock.

Graphics by Yogesh Kumar/Mint

We welcome your comments at marktomarket@livemint.com