Go On Board - Pipavav Shipyard

Pipavav Shipyard (PSL) a company situated at the port of Pipavav (Gujarat) and building India’s largest dockyard is tapping primary capital market with an initial public offer of 8.54 crore equity shares having face value of Rs 10 each. The issue would constitute 12.74 per cent of the fully diluted post equity capital of the company and PunjLloyd will hold 19.43 per cent stake in the company after this issue. At the time of going to press, the company had not announced the price band. However, based on our valuation matrix, we feel that the company like this should command market value between Rs 3000 to Rs 3500 crore. And for the benefit of the readers, we would again revisit the IPO once the price band is announced and same would be put up on our website www.dsij.in.

The funds will be utilized for the construction of facilities for shipbuilding, ship repair and offshore business. The total project cost is Rs 2,995.18 crore, out of which the company has already got term loans from financial institutions and banks to the tune of Rs 1,312.0 crore and about Rs 1,260 crore will be financed by equity and the rest will be raised through IPO. The company’s debt-equity ratio of arround one looks  comfortable. PSL has already bagged orders for 22 Panamax bulk carriers of 74,500 DWT each along with options to construct additional Panamax vessels and delivery will begin from April 2010 onwards. It has also bagged an order for 12 OSVs from ONGC. Going forward, PSL is aiming for defence industry production and has bid for seven navel vessels. This would shield its revenues from any fluctuation due to cyclical nature of business. Apart from this, it is also aiming for Indian offshore market, which has received major fillip with NELP programme of the Indian government. The estimated capital expenditure for this segment is around US$ 10 billion, which will benefit the company going forward. The company has commenced its commercial production on April 1, 2009, hence we cannot compare company’s financial performance year-wise. All the prior year revenues are from sources other than production of the ships.[PAGE BREAK]

PSL is currently completing the construction of the Pipavav Shipyard, located on the west coast of India adjacent to major sea lanes between the Persian Gulf and Asia. The construction of the Pipavav Shipyard is substantially complete. The installation of two Goliath cranes, each capable of lifting up to 600 tonnes, is currently underway and the construction of the Pipavav Shipyard (other than the offshore yard) is expected to be completed by October 2009. The offshore yard, which is currently being developed to cater to business opportunities in the fabrication and construction of offshore business products, is expected to be ready for full utilisation by the end of March 2010. Upon completion of the construction, Pipavav Shipyard will have the largest dockyard in India, with a capacity to build and repair ships of up to 400,000 DWT, together with facilities for fabrication and assembly of products for the offshore sector. The complex is spread over an aggregate area of 198.92 hectares, comprising an SEZ unit spread over 95 hectares and an EOU spread over 103.92 hectares. We feel that with the growth opportunity that the shipyard industry presents, one can subscribe with a long-term horizon.