Cochin Ship­yard Ltd

(BSE Code: 540678) (CMP: Rs.377.15) (FV: Rs.10) By Bik­sha­p­athi Thota

Money Times - - Best Bet -

In­cor­po­rated in 1972, Cochin Ship­yard Ltd (CSL) has emerged as a fore­run­ner in the ship­build­ing and ship re­pair in­dus­try hav­ing ex­ported 45 ships to var­i­ous com­mer­cial clients out­side In­dia such as Na­tional Pe­tro­leum Con­struc­tion Com­pany (Abu Dhabi), the Clip­per Group (Ba­hamas), Vroon Off­shore (Nether­lands) and SIGBA AS (Nor­way). It has built and re­paired some of the largest ships in In­dia and is now build­ing the pres­ti­gious Indige­nous Air­craft Car­rier for the

In­dian Navy. Apart from bulk car­ri­ers, it builds smaller and more tech­ni­cally so­phis­ti­cated ves­sels such as Plat­form Sup­ply Ves­sels (PSVs) and An­chor Han­dling Tug Sup­ply Ves­sels (AHTSVs). Its key ship­build­ing clients in the do­mes­tic mar­ket in­clude the In­dian Navy, the In­dian Coast Guard and the Ship­ping Cor­po­ra­tion of In­dia. The Gov­ern­ment of In­dia holds 75% stake in the com­pany.

Ship­build­ing: CSL gen­er­ated an in­come of Rs.1731.86 crore in FY18 from this ver­ti­cal v/s Rs.1515.82 crore in FY17. Dur­ing the year, it de­liv­ered 2 dou­ble-ended Ro-Ro ves­sels for Kochi Mu­nic­i­pal Cor­po­ra­tion apart from var­i­ous other projects. It also com­menced work on some ma­jor projects. Its Phase III con­tract is ex­pected to be con­cluded by FY19 end.

Ship Re­pair: CSL is a mar­ket leader in the ship re­pair seg­ment with ~39% mar­ket share. Its ship re­pair busi­ness is twice more prof­itable com­pared to its ship­build­ing busi­ness. It has ex­e­cuted over 2,000 projects in this ver­ti­cal. It un­der­takes com­plex and so­phis­ti­cated re­pairs of all types of ves­sels in­clud­ing Oil Rigs, Naval and Coast Guard Ves­sels, Off­shore Ves­sels, Dredgers, Fish­ing Ves­sels, Pas­sen­ger Ships, Port Crafts, etc. It is the only yard in In­dia to un­der­take dry dock re­pairs of Air­craft Car­ri­ers INS Vi­raat and INS Vikra­ma­ditya. It has also un­der­taken ma­jor re­vamp­ing and re­fur­bish­ing of oil rigs in­clud­ing steel re­newal, up gra­da­tion of drilling, ce­ment­ing, me­chan­i­cal, pip­ing sys­tems in al­most all ma­jor off­shore ves­sels and rigs of ONGC. The man­age­ment also wishes to cap­i­tal­ize on in­land wa­ter trans­porta­tion and coastal ship­ping space through var­i­ous ca­pac­ity build­ing ini­tia­tives.

Re­cent Devel­op­ments:

a) CSL is in the process of en­hanc­ing its ex­ist­ing ca­pac­ity by build­ing a new dry dock on its premises and set­ting up an in­ter­na­tional ship re­pair fa­cil­ity (ISRF) at the Cochin Port Trust land. Post ex­pan­sion, it will have the ca­pac­ity to re­pair ~150 ships in Kochi v/s ~80-100 ships cur­rently. There­fore, it ex­pects the ISRF fa­cil­ity to add an­other Rs.300 crore in rev­enue in the se­cond year of its op­er­a­tion.

b) CSL has signed MoUs with the Mum­bai Port Trust and Kolkata

Port Trust for set­ting up ship re­pair fa­cil­i­ties at the Indira Dock in Mum­bai and Ne­taji Sub­hash Dock in Kolkata. Post ex­pan­sion, its Mum­bai fa­cil­ity is ex­pected to gen­er­ate rev­enues of ~Rs.150200 crore in 2.5 years while the Kolkata fa­cil­ity is ex­pected to gen­er­ate rev­enues of ~Rs.30-40 crore.

c) CSL formed a JV with Hooghly Dock and Port Engi­neers Ltd to op­er­a­tional­ize the Salkia and Nazir­gunge fa­cil­i­ties for the con­struc­tion and re­pair of ves­sels for in­land and coastal wa­ter­ways.

It signed a MoU with United Ship­build­ing Cor­po­ra­tion (USC), Rus­sia, to col­lab­o­rate for the de­sign, de­vel­op­ment and ex­e­cu­tion of high-end, state-of-the-art ves­sels for in­land and coastal wa­ter­ways. It signed a MoU with De­fence Re­search and De­vel­op­ment Or­gan­i­sa­tion (DRDO) for ex­port of de­fence ves­sels.

d) CSL emerged as the low­est bid­der for a Rs.5400 crore project of the In­dian Navy com­pris­ing 8 ves­sels. It also won the con­tract for Sagar Bhushan from ONGC and Sa­gard­hwani of DRDO.

Out­look and Val­u­a­tion: CSL’s over­all or­der book stands at over Rs.12000-13000 crore. In the ship build­ing ver­ti­cal, it ex­pects over Rs.2000 crore worth projects be­ing ex­e­cuted in FY19. It be­lieves that the on­go­ing and up­com­ing ex­pan­sion projects will help free up more space for re­pair­ing large in­ter­na­tional ves­sels and dou­bling its ship re­pair­ing rev­enue to Rs.1200 crore in the next 3 years. CSL is also look­ing at set­ting up a fa­cil­ity in the An­daman & Ni­co­bar Is­lands. CSL has cash and cash equiv­a­lents of Rs.3367 as at FY18, which is ~65% of its mar­ket cap. Its cur­rent or­der book stands at ~Rs.7000 crore. With best-in-class ex­e­cu­tion ca­pa­bil­i­ties, lever­age-free bal­ance sheet, sub­stan­tial or­ders in hand, planned capex and ac­qui­si­tion plans, its fu­ture seems bright with good earn­ings vis­i­bil­ity. There­fore, we have a Buy on the stock with a price tar­get of Rs.525 (15x FY19E earn­ings) within a year.

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