Issue Date:?24th Sept ? 26th Sept 2018
Price Band(Rs):?115-118 |??Lot Size (No. of Share):?120
Company Background
Incorporated in 1913, Garden Reach Shipbuilders & Engineers Ltd is a mini Ratna-Category I engaged in shipbuilding company under the administrative control of the MoD. It is engaged in the engineering and engine production activities and manufactures deck machinery items, pre- fabricated portable steel bridges and marine pumps. It is the first and the only Indian shipyard to build and deliver fleet tanker to the Indian Navy and to build and deliver hovercraft to the Indian cost guard among others.
Issue Details
| Issue Opens | 24-Sept-18 |
| Issue Closes | 26-Sept-18 |
| Issue Size(Rs in Crore) | 344.69 |
| Face value(per equity share) | 10 |
| Price Band(Rs.) | 115-118 |
| Lot Size(No of Share) | 120 |
| No of Shares on Offer(Crore) | 2.92 |
| QIB(%) | 50% |
| Non-Institutional(%) | 15% |
| Retail(%) | 35% |
| Commencement of Trading | 08-Oct-18 |
Strengths
- Significant advantage over global shipyards in securing contracts due to make in India initiative.
- Modern infrastructure with integrated shipbuilding capabilities.
- Offers diversified products and services in addition to shipbuilding.
Concerns
- The GoI has significant influence over its actions, which may restrict its ability to manage its business.
- Dependence on single supplier for its engines division.
- Company’s inability to keep pace with technological changes or devote resources for new product development could affect company’s business operations
Our View
On upper price band of Rs 118 and EPS of Rs7.14, P/E works out to be 16.5x. On last 3 years average consolidated EPS of Rs 6, P/E works out to be 19.6x. There are no listed peers doing similar business, hence we cannot ascertain whether the issue price is under priced or overpriced.
Garden Reach ShipBuilders Ltd (GRSE) had a strong order book position of Rs 203.14 billion. However, GRSE order booking and revenue heavily depends on Indian Navy and ICG. Hence, any reduction in order flow from these two entities would significantly impact the company. Although, Garden Reach ShipBuilders is one of India?s leading public sector shipyards catering to the defence sector but due to weak financial performance, highly labor intensive industry and lumpy business cycle. It is not looking attractive to deploy the funds in at present level. We believe this IPO is not suitable and hence recommend Avoid rating to this issue.
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