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Garden Reach IPO review (May apply)

Review By Dilip Davda on Sep 12, 2018

• Company under Ministry of Defense and serving to Navy/Cost Guards.
• Suffered setback for FY17 for up gradation/technology adoption.
• Has order on hands worth Rs. 20300 crore plus.
• Asking price at a P/E of around 16, No listed peers to compare with.
• Appears a worthy bet for long term.

ABOUT COMPANY:
Garden Reach Shipbuilders & Engineers Ltd. (GRSE) is a shipbuilding company in India under the administrative control of the MoD (Ministry of Defense) and primarily adheres to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. In addition to its ship and warship building capabilities, company is engaged in engineering and engine production activities. As a part of GRSE's engineering division, it manufactures deck machinery items, pre-fabricated portable steel bridges and marine pumps. Its shipbuilding division contributes a significant majority of revenue from operations. Company has derived 94.14%, 90.13%, 92.19% and 94.76% of its gross revenue from operations in Fiscals 2018, 2017, 2016 and 2015 respectively from shipbuilding division. GRSE enjoys 'Mini Ratna' status.

Company has established capabilities for in-house design and shipbuilding and has made considerable contributions to the indigenous warship construction program of country under 'Make-In-India'. Its shipbuilding product line spans from technologically sophisticated Frigates and Corvettes to Fast Patrol Vessels. In last five (5) decades, GRSE built and delivered ships ranging from small to large and advanced vessels including frigates, anti-submarine warfare corvettes, missile corvettes, landing ship tanks, landing craft utilities, survey vessels, fleet replenishment tankers, fast patrol vessels, offshore patrol vessels, inshore patrol vessels, WJ-FAC, hover crafts and fast interceptor boats to the Indian Navy, Indian Coast Guard, MHA and Governments of other countries. GRSE has built and supplied more than seven hundred fifty (750) vessels to carry men and materials as well as for the surveillance of the coast line. Over the years, it has responded to the varied shipbuilding requirements of the Indian Defense Services and has evolved from building simpler vessels to building bigger and technically advanced warships. In fact GRSE participated in construction of New Railway Bridge at Elphistone (WR) and the rebuilding of recently collapsed bridge at Kolkata.

ISSUE DETAILS/CAPITAL HISTORY:
For divestment and listing gains, GRSE is coming out with a maiden IPO via offer for sale of 29210760 equity shares of Rs. 10 each via book building process. It has fixed the price band of Rs. 115-Rs. 118 per share. Minimum application is to be made for 120 shares and in multiples thereon, thereafter. Issue opens for subscription on 24.09.18 and will close on 26.09.18. Post allotment, shares will be listed on BSE and NSE. Company has reserved 572760 shares for eligible employees. From the rest, it has reserved 50% for QIBs, 15% for HNI and 35% for Retail. GRSE is offering a discount of Rs. 5 per share to employees and retail investors. Issue constitutes 25.5% of the post issue paid up capital of the company. GRSE mulls mobilization of Rs. 330.53 cr. to Rs. 339.30 cr. (based on lower and upper price bands on net basis post discount) through this secondary offer. Post issue it's paid up equity capital remains same at Rs. 114.55 cr. Its entire equity is issued at par. Average cost of acquisition of shares by the promoters is Rs. 4.00 per share. BRLM's to this issue are IDBI Capital Markets & Securities Ltd. and Yes Securities (India) Ltd. while Alankit Assignments Ltd. is the registrar to the issue.

Garden Reach


FINANCIAL PERFORMANCE:
On financial performance front, for last four fiscals, GRSE has posted turnover/net profits of Rs. 1629.44 cr. / Rs. 51.73 cr. (FY15), Rs. 1856.06 cr. / Rs. 164.45 cr. (FY16), Rs. 1146.31 cr. / Rs. 11.47 cr. (FY17) and Rs. 1525.75 cr. / Rs. 86.81 cr. The company suffered a setback for FY17 on account of up gradation of its facility to adopt new latest technology. However, the company is now on track as indicated by FY18 earnings and is now in full swing.

It has order on hand worth Rs. 20313 cr. as on 31.07.18. In addition to firm order book, as of the date of RHP, GRSE has also been adjudged the lowest bidder for four (4) Survey Vessels (Large) and eight (8) Anti Submarine Warfare Shallow Water Craft (ASW SWC) from MoD and one (1) Ocean Going Passenger and Cargo Ferry Vessel, which presently does not form a part of its order book as letters of award have not been issued.

Issue is priced at a P/BV of 1.33 on the basis of its NAV of Rs. 88.69 as on 31.03.18. For last three fiscals, GRSE has posted an average EPS of Rs. 6.10 and an average RoNW of 7.01%. Based on FY18 earnings asking price is at a P/E of around 16, thus on the given performance, issue appears fully priced. However, one has to make a note for orders on hand that will keep this company busy for at least next 5 to 7 years.

COMPARISION WITH LISTED PEERS:
It has not listed peers to compare with.

BRLM'S TRACK RECORDS:
On BRLM's front, two merchant bankers associated with the offer have handles 15 public issues in the past three years out of which 4 issues closed below the issue price on listing date.


Conclusion / Investment Strategy

Considering the improved performance of FY18 post scale up in capacities with adoption of new technologies and order on hand, investors may consider investment for long term in the issue of company related to defense sector.

Review By Dilip Davda on Sep 12, 2018

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Garden Reach Shipbuilders IPO FAQs

  1. 1. Why Garden Reach Shipbuilders IPO?

    The initial public offer (IPO) of Garden Reach Shipbuilders & Engineers Limited offers an early investment opportunity in Garden Reach Shipbuilders & Engineers Limited. A stock market investor can buy Garden Reach Shipbuilders IPO shares by applying in IPO before Garden Reach Shipbuilders & Engineers Limited shares get listed at the stock exchanges. An investor could invest in Garden Reach Shipbuilders IPO for short term listing gain or a long term.

  2. 2. How is Garden Reach Shipbuilders IPO?

    Read the Garden Reach Shipbuilders IPO recommendations by the leading analyst and leading stock brokers.

    • Angel Broking - Neutral
    • Asit C. Mehta Investment Intermediates Ltd - Apply
    • Canara Bank - Apply
    • Choice Equity Broking Pvt Ltd - Avoid
    • Dilip Davda - May apply
    • GEPL Capital Ltd - Apply
    • Rudra Shares & Stock Brokers Ltd - Apply
    • SMC Global - Apply
  3. 3. Garden Reach Shipbuilders IPO what should investors do?

    Garden Reach Shipbuilders IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Garden Reach Shipbuilders IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Garden Reach Shipbuilders IPO good?

    Our recommendation for Garden Reach Shipbuilders IPO is to subscribe for long term.

  5. 5. Is Garden Reach Shipbuilders IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Garden Reach Shipbuilders IPO.

  6. 6. When will Garden Reach Shipbuilders IPO allotment status?

    The Garden Reach Shipbuilders IPO allotment status will be available on or around Oct 1, 2018. The allotted shares will be credited in demat account by Oct 3, 2018. Visit Garden Reach Shipbuilders IPO allotment status to check.

  7. 7. When will Garden Reach Shipbuilders IPO list?

    The Garden Reach Shipbuilders IPO will list on Wednesday, October 10, 2018, at BSE, NSE.