Please refer to important disclosures at the end of this report
1
Mazagon Dock Shipbuilders Ltd (MDSL)
is India's leading defence public sector
unde
rtaking shipyard under the Ministry of Defence (MoD). Mazagon Dock is
primarily engaged in constructing and repairing warships and submarines for
MoD and other types of vessels i.e. cargo ships, multipurpose support vessels,
barges and border outposts, tug
s, dredgers, water tankers, etc. for commercial
clients.
Strong order book provides revenue visibility: Currently, MDSL has
strong order
book of around `54,074cr that provides revenue visibility for long-term.
Order
book comprises of four P-15 B destroyers, four P-17A
and refit of a ship, four Scorpene class submarine
s and one medium refit and
life certification of a submarine.
Government’s focus on indigenization to boost Indian defence: MDSLs
focus
on indigenization under ‘Make in India’, Atmanirbhar Bharat’, etc.
will be a
key positive for growth. Recently, the government has taken steps
to ban 101
defence items, which clearly indicates government’s focus on indigenization
to
promote and create big opportunities in Indian defence sector. Going ahead, it
would be beneficial for companies like MDSL.
Plans to diversify revenue: MDSL intends to foray into segments like exporting
its products, focus on ship repair facility and also enhancing i
nfrastructure &
manufacturing capacity th
at would help the company to diversify its revenue in
future.
Outlook & Valuation: In terms of valuations, the pre-
issue P/E works out to 6.1x
FY20 earnings (at the upper end of the issue price band), which is lower vs.
peers like Garden Reach Shipbuilders and Cochin Shipyard
(trading at 12.2x
and 6.6x of its FY20 earnings, respectively). Further, MDSL
has healthy ROE of
~16% coupled with
highest dividend yield (7.4%) and higher cash on balance
sheet among its peers. Hence, considering the above positive f
actors, we
recommend SUBSCRIBE to the issue with a long-term horizon.
Key Financials
Y/E March (Rs cr)
FY2017
FY2018
FY2019 FY2020
Net Sales
3,519
4,470
4,614
4,978
% chg
27.0
3.2
7.9
Net Profit
598
496
532
477
% chg
(17.1)
7.3
(10.4)
OPM (%)
3.6
3.5
5.7
5.4
EPS (Rs)
29.7
24.6
26.4
23.7
P/E (x)
4.9
5.9
5.5
6.1
P/BV (x)
1.0
1.0
0.9
1.0
RoE (%)
20.0
17.5
16.6
15.5
RoCE (%)
2.7
3.4
5.8
6.2
EV/Sales (x)
(1.6)
(1.0)
(1.0) (0.6)
EV/EBITDA (x)
(45.0)
(29.3)
(18.5) (11.9)
Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end
of the price band
SUBSCRIBE
Issue Open: Sep 29, 2020
Issue Close: Oct 01, 2020
Offer for Sale: 3cr Share
QIBs 50% of issue
Non-Institutional 15% of issue
Retail 35% of issue
Promoters 85.0%
Others 15.0%
Issue Details
Face Value: Rs.10
Present Eq. Paid up Capital: Rs202cr
Post Issue Shareholding Pattern
Post Eq. Paid up Capital: Rs202cr
Issue size (amount): **Rs444cr
Price Band: Rs135-145
Lot Size: 103 shares and in multiple thereafter
Post-issue implied mkt. cap: * Rs2,723cr - **Rs2,925cr
Promoters holding Pre-Issue: 100%
Promoters holding Post-Issue: 85%
*Calculated on lower price band
** Calculated on upper price band
Book Building
Amarjeet S Maurya
+022 39357600, Extn: 6831
amarjeet.maur[email protected]elbroking.com
Mazagon Dock Shipbuilders Ltd.
IPO Note | Defenc
e
Sep 27
, 2020
Mazagon Dock Shipbuilders Limited |
IPO Note
September 27, 2020
2
Company background
Incorporated in 1934, Mazagon Dock Shipbuilders Ltd. is India's leading
defence public sector undertaking shipyard under the Ministry of Defence
(MoD). Mazagon Dock is primarily engaged in constructing and repairing
warships and submarines for MoD and other types of vessels i.e. cargo ships,
multipurpose support vessels, barges & border outposts, tugs, dredgers, water
tankers, etc. for commercial clients. It is the only shipyard to build destroyers
and conventional submarines to be used by the Indian Navy.
The business has two key operating divisions i.e. Shipbuilding division that
undertakes building and repairing of naval ships, and Submarine and heavy
engineering division, which includes building, repairing, and refitting of diesel
electric submarines. Till 2020, the company has built 795 vessels, including 25
warships, 4 missile boats, 3 submarines, 6 Leander class frigates, 3 Godavari
class frigates, 3 Shivalik class frigates, 3 corvettes, and 6 destroyers.
Mazagon Dock Shipyard is strategically located on the west coast of India, the
sea route that connects Europe, Pacific Rim, and West Asia.
Mazagon Dock Shipbuilders Limited |
IPO Note
September 27, 2020
3
Issue details
MDSL’s Promoter (Government of India) is selling ~3cr equity share (face value of
10) through Offer for Sale in the price band of `135-145, which is ~15% total
paid-up equity share capital.
Exhibit 1: Pre and post IPO shareholding pattern
No of shares (Pre-
issue)
%
No of shares (Post-
issue)
%
Promoters
201,690,000
100%
171,090,983
85%
Others
NA
0%
30,599,017
15%
201,690,000
100%
201,690,000
100%
Source: Source: RHP
Objectives of the Offer
The net proceeds from the IPO will be used towards following objectives:
To carry out the disinvestment plan
To achieve the benefits of share listing on the stock exchanges
Outlook & Valuation
In terms of valuations, the pre-issue P/E works out to 6.1x FY20 earnings (at
the upper end of the issue price band), which is lower compared to peers like
Garden Reach Shipbuilders and Cochin Shipyard (trading at 12.2x and 6.6x
of its FY20 earnings, respectively). Further, MDSL has healthy ROE of ~16%
coupled with highest dividend yield (7.4%) and higher cash on balance sheet
among its peers. Hence, considering the above positive factors, we
recommend SUBSCRIBE on the issue with a long-term horizon.
Key Risks
Slowdown in order inflow and execution would impact the company’s
profitability.
Mazagon Dock Shipbuilders Limited |
IPO Note
September 27, 2020
4
Income Statement
Y/E March (` cr)
FY2017
FY2018
FY2019
FY2020
Net Sales
3519
4470
4614
4978
% chg
27.0
3.2
7.9
Total Expenditure
3,393
4,316
4,353
4,710
Raw Material
2175
2785
3
165
2865
Personnel
729
886
689
793
Others Expenses
490
645
499
1051
EBITDA
126
155
261
268
% chg
23.0
68.6
2.7
(% of Net Sales)
3.6
3.5
5.7
5.4
Depreciation& Amortisation
42
52
64
69
EBIT
84
102
196
199
% chg
21.6
92.2
1.4
(% of Net Sales)
2.4
2.3
4.3
4.0
Interest & other Charges
9
9
9
9
Other Income
756
557
591
558
Recurring PBT
831
650
778
748
% chg (21.7)
19.6
(3.9)
Extraordinary Items
-
-
-
12
PBT
831
650
778
735
Tax
288
257
308
352
(% of PBT)
34.6
39.5
39.5
47.0
PAT (reported)
543
394
470
384
Profit/Loss of Associate Company
55
103
62
93
ADJ. PAT
598
496
532
477
% chg (17.1)
7.3
(10.4)
(% of Net Sales)
17.0
11.1
11.5
9.6
Basic EPS (`)
29.7
24.6
26.4
23.7
Fully Diluted EPS (`)
29.7
24.6
26.4
23.7
% chg (17.1)
7.3
(10.4)
Source: Company, Angel Research
Mazagon Dock Shipbuilders Limited |
IPO Note
September 27, 2020
5
Exhibit 2: Balance Sheet
Y/E March (` cr) FY2017 FY2018 FY2019
FY2020
SOURCES OF FUNDS
Equity Share Capital 249
224
224
202
Reserves& Surplus 2,741
2,610
2,993
2,867
Shareholders Funds 2,990
2,834
3,217
3,069
Total Loans 167
160
158
169
Deferred Tax Liability -
-
-
-
Total Liabilities 3,157
2,994
3,375
3,239
APPLICATION OF FUNDS
Net Block 565
705
810
848
Capital Work-in-Progress 98
85
89
80
Investments 384
429
431
484
Current Assets 17,656
17,392
18,743
18,916
Inventories 4,029
3,786
3,790
4,623
Sundry Debtors 828
1,129
1,489
1,474
Cash 8,363
7,190
7,470
5,798
Loans & Advances 10
10
11
9
Other Assets 4,427
5,277
5,983
7,012
Current liabilities 16,234
16,377
17,473
17,727
Net Current Assets 1,422
1,015
1,270
1,188
Deferred Tax Asset 688
759
775
638
Total Assets 3,157
2,994
3,375
3,239
Source: Company, Angel Research
Mazagon Dock Shipbuilders Limited |
IPO Note
September 27, 2020
6
Exhibit 3: Cash Flow Statement
Y/E March (` cr)
FY2017
FY2018
FY2019 FY2020
Profit before tax
8,306
6,504
7,781
7,354
Depreciation
417
525
6
43
711
Change in Working Capital
(8,985)
5,795
819
(1,661)
Interest / Dividend (Net)
93
91
91
93
Direct taxes paid
(3,461)
(3,070)
(3,159)
(2,082)
Others
(6,396)
(4,937)
(5,523)
(5,370)
Cash Flow from Operations
(10,027)
4,908
652
(956)
(Inc.)/ Dec. in Fixed Assets
(2,183)
(1,929)
(1,718)
(1,095)
(Inc.)/ Dec. in Investments
7,113
5,409
5,884
5,632
Cash Flow from Investing
4,930
3,479
4,166
4,537
Issue of Equity
0
0
0
0
Inc./(Dec.) in loans
0
0
0
0
Dividend Paid (Incl. Tax)
(2,398)
(2,954)
(1,206)
(2,618)
Interest / Dividend (Net)
(54)
(3,126)
(52)
(3,428)
Cash Flow from Financing
(2,452)
(6,080)
(1,257)
(6,046)
Inc./(Dec.) in Cash
(7,549)
2,307
3,561
(2,464)
Opening Cash balances
8,978
1,429
3,736
7,297
Closing Cash balances
1,429
3,736
7,297
4,833
Source: Company, Angel Research
Mazagon Dock Shipbuilders Limited |
IPO Note
September 27, 2020
7
Exhibit 4: Key Ratios
Y/E March FY2017 FY2018
FY2019
FY2020
Valuation Ratio (x)
P/E (on FDEPS)
4.9
5.9
5.5
6.1
P/CEPS
5.0
6.6
5.5
6.5
P/BV
1.0
1.0
0.9
1.0
Dividend yield (%)
6.8
8.4
3.4
7.4
EV/Sales
(1.6) (1.0)
(1.0)
(0.6)
EV/EBITDA
(45.0)
(29.3)
(18.5)
(11.9)
EV / Total Assets
(1.8) (1.5)
(1.4)
(1.0)
Per Share Data (`)
EPS (Basic)
29.7
24.6
26.4
23.7
EPS (fully diluted)
29.7
24.6
26.4
23.7
Cash EPS
29.0
22.1
26.5
22.4
DPS
9.9
12.2
5.0
10.8
Book Value
148.3
140.5
159.5
152.2
Returns (%)
ROCE
2.7
3.4
5.8
6.2
Angel ROIC (Pre-tax)
(1.5) (2.2)
(4.3)
(6.5)
ROE
20.0
17.5
16.6
15.5
Turnover ratios (x)
Inventory / Sales (days)
418
309
300
339
Receivables (days)
86
92
118
108
Payables (days)
98
197
232
351
Working capital cycle (ex-
cash) (days)
406
205
186
96
Source: Company, Angel Research
Mazagon Dock Shipbuilders Limited |
IPO Note
September 27, 2020
8
Research Team Tel: 022
-
39357800 E
-
m
ail: resea[email protected]king.
com Website:
www.angelbroking.com
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