Cochin Shipyard IPO valuation attractive, good proxy play for defence sector: Analysts

With a price band of Rs424-432 per share, Cochin Shipyard aims to raise up to Rs 1,468 crore through its share sale offer and will close for subscription on 3 August.

As the initial public offering (IPO) of Cochin Shipyard opens for subscription on Tuesday, analysts said the government-run company is a good proxy play for the Indian defence sector.

The issue will see 10% divestment by the government and a 20% fresh issue. Post the issue, government’s share in Cochin Shipyard will fall to 75%. (HT Archive)

With a price band of Rs424-432 per share, it aims to raise up to Rs1,468 crore through its share sale offer and will close for subscription on 3 August. The issue will see 10% divestment by the government and a 20% fresh issue. Post the issue, government’s share in Cochin Shipyard will fall to 75%.

Most analysts find the issue to be attractive. IIFL Wealth Management Ltd said in a 28 July report that the IPO provides good retail exposure to the promising domestic defence sector and available at attractive valuations of 18.1 times FY17 price to earnings (PE). “With average margins of 18% over last five years and return on equity (RoE) of around 15 over the same period, it has consistently delivered the goods, even during the slowdown phase in shipbuilding industry,” it added.

Continuous focus on high margin repair business, strong positioning in west coast of India, healthy order book and negligible debt with cash and bank balance of Rs2,000 crore and decent ROEs and return on capital employed (ROCE) are key strengths of Cochin Shipyard, according to Motilal Oswal Securities Ltd (MOSL). “At higher end of price band, the issue is attractive,” MOSL said.

In FY17 its order book stood at Rs3,339 crore including shipbuilding orders worth Rs2,936 crore and ship repair orders worth Rs403 crore.

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