Cochin Shipyard Ltd (CSL)

Ratings Mix
Ratings BUY
CMP Rs.420.10
Target Rs.529
Target Period 9-12 Months
Potential Upside 26%

 

 

Stock Data
Market Capitalization Rs.5710.67cr
Total Debt(FY18) Rs.123cr.
Cash & Investments(FY18) Rs.3505cr.
EV(FY18) Rs.2328.67cr
52 Week High/Low (NSE) Rs.599/Rs.417.60
Equity Capital Rs.135.93cr
Face Value Rs.10

 

Shareholding Pattern (In %)

VALUATION FY17 FY18
P/E 14.79 13.53
P/B 2.81 1.75
EV/EBITDA 6.06 5.01
EV/Sales 1.13 0.99
RONW (%) 15.85% 12.19%
Dividend Payout Ratio(%) 32% 41%

 

KEY FINANCIALS
Rs. (in crore) FY17 FY18
Revenue Rs.2217cr Rs.2544cr
EBITDA Rs.383cr Rs.464cr
Net Profit Rs.321cr Rs.396cr
Net Profit Margins 14.5% 15.59%
EPS (Rs) Rs.28.39 Rs.31.03

 

Cochin Shipyard Ltd(CSL) was incorporated in the year 1972 as a fully owned Government of India company. In the last three decades the company has emerged as a forerunner in the Indian Ship building & Ship repair industry. Cochin Shipyard Ltd (CSL) has the capacity to build and repair the largest vessels in India. It can build ships upto 1,10,000 DWT and repair ships upto 1,25,000 DWT. CSL has secured shipbuilding orders from internationally renowned companies from Europe & Middle East and is nominated to build the country’s first indigenous Air Defense Ship. CSL 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 lay up repairs and life extension of ships of Navy, UTL, Coast Guard, Fisheries and Port Trust besides merchant ships of SCI & ONGC. The yard has over the years, developed adequate capabilities to handle complex and sophisticated repair jobs. CSL is the largest green field Ship building and Ship repair yard in the country, situated adjacent to the Port of Cochin in the West Coast of India. The yard is built up in 170 acres of land, out of which 60 acres is set aside for future expansion. Cochin Shipyard limited was listed on NSE and BSE on August 11, 2017.

The Company is engaged in two major activities:

  1. Shipbuilding
  2. Repair of ships / Offshore Rigs etc.

 

YoY Trend (Rs in Cr.)

In FY18,CSL Total Revenue rose @ 14.39% to Rs.2335.12cr. from Rs.2058.87cr in FY17. PAT has risen to with an impressive rate of 23.39% to Rs.396.75cr in FY2018 as compared to Rs.321.55cr in FY17. 

QoQ Trend (Rs In Cr.)

Quarter Ended Revenue % Change PBT % Change PAT % Change
Q1FY19 716.31 12.15 161.2 13.85 106.31 16.03
Q4FY18 638.69 -4.11 141.59 -19.58 91.62 -19.46
Q3FY18 666.04 2.72 176.06 19.92 113.76 13.53
Q2FY18 648.4 8.96 146.81 4.58 100.20 9.93
Q1FY18 595.06 140.38 91.15

 

Cochin Shipyard (CSL) revenue has risen @ 12.15% to Rs.716.31cr in Q1FY19 in comparison to Rs.595.06cr in Q4FY18. And PAT has grown @16% to Rs.106.3cr in Q1FY19 as compared to Rs.91.62cr in Q4FY18

 

Order Book – Shipbuilding

Sr.No Current Order Book Nos Client
1. Phase II of the IAC- Vikrant 1 Indian Navy
2. 1200 passenger cum 1000 ton cargo vessels 2 Admin
3. Research Vessel 1 GOI
4. 500 passenger cum 150 ton cargo vessels 2 A & N Admin
5. ASW Corvettes 8 of 16 Indian Navy
6. Fishing Vessels 16 DOF, TN
7. Ro-Ro & Ro-Pax Vessels 10 IWAI
8. IAC Phase III (Fixed Price Contract) (not signed)` Indian Navy
9. IAC Phase III (Cost plus Contract) (not signed) Indian Navy

 

Year End Net Worth % Change Capital Employed % Change
FY18 Rs.3,256cr 60.47 Rs.3,212cr 53.76
FY17 Rs.2,029cr 11.85 Rs.2,089cr 23.24
FY16 Rs.1,814cr 16.21 Rs.1,695cr 4.57
FY15 Rs.1,561cr 15.37 Rs.1,621cr 16.62
FY14 Rs.1,353cr Rs.1,390cr

 

Net Worth of Cochin Shipyard Ltd has risen @60.47% to Rs.3,256cr in FY18 as compared to Rs.2,029cr in FY17. And during the same period Capital employed has risen to Rs.3,212cr in FY18 in comparison to Rs.2,089cr in FY17.

                                             

 

CSL reported  an EPS  of Rs.31.03 in FY2018 with 9.3% growth in comparison to Rs.28.39 in FY2017.PAT Margins increased by 123bps in FY18 to 16.85% as compared to 15.62% in FY17.

Quarter Ended EPS (Rs.) % Change Net Debt (Rs. in Cr) % Change
Q1FY19 7.82 16.02 123
Q4FY18 6.74 -19.47 123
Q3FY18 8.37 5.55 123
Q2FY18 7.93 -1.49 123
Q1FY18 8.05 123

 

Segment-Wise Revenue (YoY) (Rs. in Cr)

For Cochin Shipyard Ltd in FY18, Shipbuilding  and Ship repair segment contributed 73.55% and 26.45% to the topline, respectively. Revenues from Shipbuilding rose @14.25% to Rs.1,732cr in FY18 as compared to Rs.1,516cr in FY17. Even Ship Repair revenue rose @14.73% to Rs.623cr in FY18 in comparison to Rs.543cr in FY17.

 

Segment-Wise Revenue (QoQ) (Rs. in Cr)
Quarter

Ended

Shipbuilding % Change Ship Repair % Change Other  Income % Change
Q1FY19 454.39 -9.76 204.34 110.51 57.58 51.17
Q4FY18 503.53 23.51 97.07 -53.79 38.09 -25.31
Q3FY18 407.7 -3.47 207.33 28.89 51 -21.73
Q2FY18 422.37 6.06 160.86 1.81 65.16 67.89
Q1FY18 398.25 158.00 38.81

 

IN Q1FY19, Revenues from Shipbuilding had risen @ 14% to Rs.454.39cr as compared to Rs.398.25cr in Q1FY18. And fallen @9%, when compared to Q4FY18’s revenue of Rs.503cr. On the other hand, revenues from Ship-Repair segment has risen at an impressive rate of 110% to Rs.204.34cr in Q1FY19 as compared to Rs.97.07cr in Q4FY18.

 

Huge Opportunities for CSL

Shipbuilding Industry

Fishing Segment : Under “Blue Revolution”, the Government of India (GOI) plans to equip the segment with more modern and efficient fishing vessels as presently this segment is highly unorganized. CSL is working closely with Tamil Nadu Fisheries by providing custom made solution to the fishermen and

has contracted for the construction of 16 vessels as a pilot project. The total requirement for the department for fishermen is about 2000 vessels. In addition, there are also potential requirements for more bigger and sophisticated vessels for the domestic and international market. This presents a vast opportunity to CSL in this segment.

Special Purpose Vessels: Various agencies are looking for modern and efficient vessels to equip and upgrade the assets to meet the operational demands. This gives an opportunity to offer custom made vessels such as Polar Research Vessels, Well Stimulation Vessel, Cement Carriers etc.

Inland and Coastal Water Segment: The government’s focus on development of inland and coastal waterways infrastructure is expected to spur demand of ships for this sector. The Government is investing substantial to improve the infrastructure in the major waterways.

This will spur the demand for such vessels in the inland water segment. It is estimated that the vessels required to meet the demand by 2030 will triple which may be around 3000+ vessels. CSL is working closely with Inland Water Authority of India (IWAI) and other potential customers to provide efficient product solutions in this segment.

The Company has signed a Memorandum of Understanding (MoU) with United Shipbuilding Corporation (USC) which is the largest shipbuilding group in Russia to collaborate and engage in Design, Development and Execution of High-End, State of Art vessels for Inland and Coastal Waterways.

Major Expansion Plans: The two major expansion plans of the company include the International Ship Repair Facility (ISRF) at the Cochin Port Trust premises and the new Drydock at the shipyard’s existing premises. These new facilities will expand the Company’s existing capabilities significantly.

MoUs Signed CSL has signed MoUs with Mumbai Port Trust and Kolkata Port Trust for upgradation, operation and management of their Ship repair Facilities by leasing the facilities for 30 years and are in the process of signing binding agreements. By teaming up with the major ports on the eastern and western coasts of India, CSL will be able to leverage its competitive advantage in Ship building and Ship Repair to achieve new heights in the industry by exploiting the wider opportunities in Inland and Coastal Shipping.

Ship-Repair Industry

India’s share in global ship repair market is less than 1%, around 7-9% of global trade is passing within 300 NM of its coastline. India’s strategic position along the east bound and west bound international trade routes offers an opportunity to cater to vessels plying on these routes. A main container route connecting America and Europe to the East passes very close to the Indian coastline presenting a major opportunity for repairs. This presents huge untapped potential which is valued around 3500 to 4000 crore.

The captive market for ship repair in India is estimated at around 2500 crore. It is estimated that only 15% of the potential is being tapped presently. Lack of infrastructure and poor ease of doing business due to government regulations and weak ancillary support are the main reasons for failure to tap the above opportunities. As a part of the Sagarmala project, government has embarked on a programme for full utilisation of existing drydockin major ports for providing ship repair services.

CSL has entered into an MOU with the Mumbai Port Trust on January 11, 2018 for operations and management of ship repair facility at Indira Dock. CSL shall utilize the facilities for the purpose of ship repair and allied services and for further expansion in the field of ship repair. Similar MOU has been signed with Kolkata Port Trust on March 17, 2018 for operations and management of ship repair facility at Netaji Subhas Dock.

CONCLUSION

  • Cochin Shipyard being the prime large shipbuilder of Government of India and enjoys a near-monopoly in shipbuilding and ship repair of large vessels.
  • CSL with CMP of Rs.420.10 is trading at a P/E 13.53 and possesses a large order book size combined with very low debt and strong cash flow with huge opportunities in Ship repair and Ship building segment in the near future.
  • A modern ‘State of the Art’ Design Centre manned by highly trained, experienced and competent Naval Architects/ Engineers, draftsmen etc and knowledgeable manpower with an average of 15 years of experience coupled with highly evolved shipbuilding processes and practices permitting modular construction of ships. In addition a great product mix comprising of defense ships, commercial ships, offshore support ships

This leads to our target of Rs.529 of Cochin Shipyard with 26% upside potential in 9-12 months going forward.

 

Source: Company Data, Wellgrow Securities

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