Garden Reach Shipbuilders IPO Recommendations: Analysts Unexcited


Garden Reach Shipbuilders IPO is scheduled to open for subscription on Monday, 24 September 2018.  The IPO, priced in the range of INR115 to 118 per share, will mobilize up to INR236.55 crore. Operating under the Ministry of Defence, the miniratna caters to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. Several brokerage houses have come up with their research notes on the IPO and here is the snapshot of major Garden Reach Shipbuilders IPO recommendations:

GEPL Capital is positive about the company’s prospects and feels that its modern infrastructure facilities and the vast expertise give it a significant edge over other domestic defence shipyards. In addition, GRSE has undertaken major modernization of its infrastructure and has constructed new hull shop, module shop for mega block integration, dry dock and building berth. “Garden Reach Shipbuilders & Engineers Ltd (GRSEL) stands to gain from operating leverage and also raise Stability from government infrastructure projects. At a P/E of 16.5x we believe that GRSEL is fairly valued. We assign a Subscribe rating to the IPO,” said research analyst Omkar Tanksal in the research note.

Garden Reach Shipbuilders IPO Recommendations: Avoid, Neutral also make way

Angel Broking finds merit in robust order book and the established relationships with Indian Navy and Coast Guard. However, it is concerned about core operating losses in last two years and the delay in execution of order book. “On the valuations front, GRSE’s pre-issue P/E works out to 15.6x FY2018 annualized earnings (at the upper end of the issue price band), which is higher compared to its peer Cochin Shipyard (trading at 14x its FY2018 annualized earnings). Further, the company’s return ratios are also lower vs. other peers. Thus, we recommend NEUTRAL rating on the issue,” said the brokerage house in its report.

Read Also: Garden Reach Shipbuilders IPO Review: Should you invest?

Choice Broking also finds the valuations excessively stretched. “On valuation front, at higher price band, the company is demanding a P/E valuation of 15.6x (to its restated FY18 EPS of Rs. 7.6) as against the peer average of 13.6x. Considering the lumpy business cycle, highly labor intensive industry and poor financial performance, we believe the demand valuation by the company is not justified. Also, since majority of the contracts are on fixed price basis – there would be pressure on profitability due to rise or volatility in the raw material prices. Thus we assign an “AVOID” rating to the issue,” noted the firm in its report on Garden Reach Shipbuilders IPO.

SMC Global Securities assigned two stars to the upcoming IPO out of the maximum five. “The company earns more than 90 per cent of its revenue from ship-building, but is also looking at increasing its other engineering activities, and to tap the potential of the proposed inland waterways transportation in the country. The company is focusing on garnering more repairs and retrofit works and lowering material costs to boost margin. Along term investor may opt the issue,” opined the company.

Read Also: Garden Reach Shipbuilders IPO Discussion

HEM Securities has recommended investors to avoid the IPO owing to poor financial performance in recent years. “The co is bringing the issue at P/E multiple of approx. 14 on FY18 EPS at price band of Rs 115-118/share. Although, company is one of India’s leading public sector shipyards catering to the defence sector but due to weak financial performance (Loss at operating level in FY17 & FY18), co is not looking attractive to deploy the funds in at present level. Hence, we recommend “Avoid” on issue,” noted its research note, further adding to negative Garden Reach Shipbuilders IPO Recommendations.

Unlike the recently concluded IRCON International IPO, there is no demand for Garden Reach Shipbuilders in the informal grey market and this may mean a muted listing is on cards.


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