Way2Wealth has placed a fair value price on Cochin Shipyard Ltd (CSL) at Rs 430 to Rs 440, as against the current market price of Rs 358, suggesting a decent uptick of more than 20 per cent on the stock. This share maybe a great year end pick, to derive benefits in 2021 and beyond.
Forerunner in the shipbuilding business
"Cochin Shipyard is fully owned Government of India company. In the last three decades the company has emerged as a forerunner in the Indian Shipbuilding & Ship-Repair industry. This yard can build and repair the largest vessels in India.
It can build ships upto 110,000 DWT and repair ships upto 125,000 DWT. The yard has delivered two of India's largest double hull Aframax tankers each of 95,000 DWT. CSL has secured shipbuilding orders from internationally renowned companies from Europe & Middle East and nominated to build the country's first indigenous Air Defense Ship INS Vikrant," Way2Wealth has stated in its latest report.
Shipyard commenced ship repair operations in the year 1982 and has undertaken repairs of all types of ships including upgradation of ships of oil exploration industry as well as periodical layup repairs and life extension of ships of Navy, Coast Guard, Fisheries and Port Trust besides merchant ships of SCI & ONGC.
Massive ticket size of projects
CSL had bid for 5 projects totaling Rs 160bn namely 1) 8 fast patrol vessels for Coast Guard 2) 12 air-cushion vessels for Coast guard 3) 6 Next-gen missile vessels (NGMV) for Indian Navy 4) 2 Multipurpose vessels and 5) 3 cadet training ships of the Indian Navy. Bids for 8 Fast patrol vehicles (FPVs) and 12 air cushion vessels were undertaken in Oct-Nov'19 and the results for the same should be visible next year. Bids for NGMV were done prior to lockdown, Multi- Purpose Vessel (MPV) in Jun'20 and Cadet training ships in Nov'20.
Rationale for investment
According to Way2Wealth given healthy order backlog of Rs 139bn, CSL has shipbuilding revenue growth visibility till FY23 with planned execution of Rs 65bn from IAC.
"It stands to benefit from indigenous defence manufacturing, which would result in faster clearances & timely executions of new projects. Government's focus on development of inland and coastal waterways infra is expected to spur demand of ships for CSL over the long term.
CSL is targeting for ship-repairing revenues of+ Rs 10bn/+ Rs 25bn with sustainable margins of 25% by FY23/ FY30 as new facilities (Mumbai, Kolkata and A&N) commence operations and commission of ISRF frees up capacity at the existing ship repair dock to undertake large scale ship repair work. Recent tie-up with Fincantieri, Italy would help gain technological inputs, design support & collaboration in high end/new generation defence vessels.
Further, a healthy cash balance of Rs 14bn (ex-advances) and robust order pipeline provides growth visibility for the company. A growing company, with high dividend pay-out & debt free balance sheet makes it an attractive BUY bet with fair value of Rs 430-440," Way2Wealth has stated in its report.
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