State-run shipbuilding company Garden Reach Shipbuilders and Engineering Ltd (GRSE) has opened for its initial public offering (IPO) on Monday, 24 September, where the government is looking at selling 25.5 percent of its stake in it. To raise Rs 345 crore in funds, the company is offering 2.9 crore equity shares at a price band of Rs 115-118 per share.
This is the government's third IPO issue in the financial year 2018-19 after IRCON and RITES.
The Garden Reach Shipbuilders IPO is open between 24 and 26 September at a price band of Rs 115-118 per share. 5,72,760 of the 2,92,10,760 equity shares offered by the Government of India is reserved for eligible employees, making up for 25.5 percent of the post paid-up share capital. Retail investors and employees get a Rs 5 per share discount. The minimum lot size is 120 shares to make the bid and in multiples of 120 thereafter.
The company aims to raise Rs 335.92 crore at the lower end of price band and Rs 344.69 crore at the higher end.
Under the administration of the Ministry of Defence, GRSE is primarily into fulfilling shipbuilding requirements of the Indian Navy and Indian Coast Guard, that is 93.69 of the total revenue. It has three shipbuilding facilities in Kolkata and operations make up for over 90 percent of its revenue. The rest comes from engineering and engine production activities.
The company's order book as on 31 July stood at Rs 20,000 crore giving it revenue visibility for 15 years, but, holds a risk of cost overruns as the contracts are based on fixed prices. Delivery delays could hurt its profitability.
It net-worth that stood over Rs 1,000 crore, translates to Rs 89 per share book value. Its revenue has declined by 2.5 percent in the last five years, while net profit fell by 8 percent, mainly due to slower order execution. Its cash balance was at Rs 1,022 crore. It is debt-free and holds high cash in books and has been regular in dividend payments since FY 2014.
ICICI Securities said, "Timelines in defense shipbuilding range from 23-66 months. Accordingly, revenue and profit recognition is very lumpy in nature. At the upper band of Rs 118, the stock is fairly priced at FY18 P/E of 15.6x and P/B of 1.3x."
Choice Broking gave it an "avoid" recommendation, "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 the majority of the contracts are on a fixed price basis - there would be pressure on profitability due to rise or volatility in the raw material prices."