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