Cochin Shipyard IPO recommendations: Subscribe is the call

Cochin Shipyard has garnered support from analysts ahead of its IPO which opens for subscription on 1 August. The fully-owned PSU IPO will involve sale of shares in the price band of INR424 – 432 per share, although retail investors will get a discount of INR21 per share. Cochin Shipyard IPO recommendations are positive and analysts have listed several aspects about the company in their ratings. Some of these are debt-free status, INR1,600 crore cash in hand, an order book of INR3,078.3 crore, as we have elaborated in our analysis of Cochin Shipyard IPO. Here is a snapshot of recommendations from major brokerage houses.

Read Also: SIS India IPO Review: Secure Enough?

ICICIdirect.com noted that the company delivered topline and bottomline growth of 11.1% and 18.7% CAGR, respectively, in FY07-17, despite turbulent times in the global shipbuilding history. “At the upper band of | 432, the stock is available at 18.2x FY17 EPS of INR23.7. We have a SUBSCRIBE recommendation on the offering based on robust order book (~INR3000 crore), strong order inflow visibility, best-in- class execution capabilities and leverage free balance sheet,” said its IPO note.

Analysts at Hem Securities have also placed a subscribe rating on the upcoming IPO. “At price of Rs 424-432/share, co is bringing the issue at p/e multiple of 18.88 on post issue FY17 eps of Rs 22.89. With decent fundamentals, co’s valuation look reasonable at cur-rent level. Hence we recommend “Subscribe” on issue,” said its research note. The brokerage house also noted the healthy order book of the company while mentioning that its top customers include the Indian Navy and the Indian Coast Guard.

Choice Broking further expanded the list of brokerage houses offering positive Cochin Shipyard IPO recommendations. “At the higher price band of Rs. 432 per share, CSLs share is valued at a P/E multiple of 18.8x (to its restated FY17 EPS of Rs. 22.97), while on the EV/EBITDA front the company is valued at a multiple of 10.8x,” said analysts at Choice Broking. The report also noted that the company, currently building India’s first Indigenous Aircraft Carrier (IAC) for the Indian Navy, stands to benefit from its focus on the high-margin ship repair business.

Analysts at Reliance Securities note that the company stands to benefit from the government’s ‘Make in India’ initiative. “We admire CSL’s ability to stay afloat in the turbulent period without compromising on margins. Going forward, government’s endeavour to improve its defence strength in sea route and several initiatives under flagship “Make in India” programme will result in healthy orders for CSL, which will drive growth. At the upper price band, CSL trades at 18.8x FY17 EPS post dilution. Though it is difficult to compare it with peers as most of the listed peers are loss making, we believe the current valuations are not expensive given healthy return ratios and bright prospects. Further, price to book ratio after dilution stands at 1.9x, which is attractive in our view. Hence, we recommend SUBSCRIBE to the issue,” said its research note.

Similar sentiments were echoed by Angel Broking which pointed out strong visibility of the company’s future growth. “In terms of valuation, pre- issue works out to 15.7x of FY2017 EPS (at the upper end of the issue price band), which is reasonably priced on the back of – (1) healthy order book with execution capability and experienced management; (2) Average RoE & ROCE for last 5 years +15%; (3) Despite cyclical business it has maintained net cash positive balance sheet; (4) easing working capital cycle from >195 days in FY2012 to current 59 days. Considering the past financial performance of CSL and strong visibility on future growth, we rate this issue as SUBSCRIBE,” analysts said in their IPO report.

We will add more to the list of Cochin Shipyard IPO recommendations in the coming days so keep coming back. Meanwhile, feel free to check out our discussion page on Cochin Shipyard IPO to check the latest grey market movements and to see what other investors have to say.