Exceptional Performance

Cochin Shipyard’s maiden equity issue oversubscribed 76 times

Cochin Shipyard Limited (CSL) has become one of the most talked about companies in the shipping sector. Recently, it has been in the news for its initial public offering (IPO) which received an exceptional response. The issue was oversubscribed 76 times, receiving bids for 2,582.5 million equity shares against an IPO size of 33,984,000 shares.

About the company

Incorporated in 1972, CSL is one of the largest public sector shipyards in the country in terms of dock capacity. The company has two docks at present, one used for ship repair and the other for shipbuilding. The ship repair dock is one of the largest in the country and can accommodate vessels with a maximum capacity of 125,000 deadweight tonnage (DWT), while the shipbuilding dock can accommodate vessels with a maximum capacity of 110,000 DWT.

In the past two decades, the company has built and delivered a variety of vessels, including bulk carriers, tankers, platform supply vessels, anchor handling tug supply vessels, barges, bollard pull tugs, passenger vessels and fast patrol vessels. CSL is presently building the country’s first indigenous aircraft carrier for the Indian Navy.

The financial strength of the company has improved significantly, and CSL has posted profits continuously in the past few fiscal years. Its total income and profit after tax (before comprehensive income) increased from Rs 16,604.52 million and Rs 692.82 million, respectively, during 2014-15 to Rs 22,085.01 million and Rs 3,121.82 million, respectively, during 2016-17, at a compound annual growth rate (CAGR) of 15.33 per cent and 112.27 per cent respectively.

During the first quarter (April-June) of 2017-18, CSL registered a total stand-alone revenue of Rs 5.95 billion as compared to Rs 4.48 billion during the corresponding quarter of 2016-17, an increase of 32.77 per cent. During April-June 2017, the stand-alone profit after tax for the company stood at Rs 911.6 million, compared to Rs 809.73 million in the corresponding quarter of the previous fiscal year. During the same period, CSL’s stand-alone expenses increased from Rs 3.24 billion to Rs 4.55 billion.

CSL has paid sizeable dividends to its shareholders at a rate of 15 per cent during fiscal years 2012-13, 2013-14, 2014-15 and 76.5 per cent during 2015-16. It has declared a dividend of 89.7 per cent for fiscal year 2016-17.

As of June 30, 2017, CSL’s total cash and bank balance stood at Rs 20.03 billion, while it had fund-based indebtedness in the form of tax-free infrastructure bonds amounting to Rs 1.23 billion.

Stellar response to IPO

CSL’s IPO took place during August 1-3, 2017. With the target of raising up to Rs 14,680 million, the IPO received bids for over 2,582.5 million shares against the total issue size of 33,984,000 shares.

The issue was oversubscribed 76.19 times, with the portion reserved for qualified institutional buyers (QIBs) receiving bids 63.52 times the number of shares on offer, while non-institutional investors (NIIs) and retail investors (RIIs) receiving bids 288.87 times and 8.51 times the number of shares on offer.

The objective of the IPO was to enhance CSL’s market position by expanding its capabilities, capitalising on opportunities both in domestic and international shipping markets and increasing its competitiveness. CSL aims to utilise the proceeds for setting up a new dry dock within the existing premises of the shipyard (at a cost of Rs 4,430 million), and an international ship repair facility (ISRF) in the Cochin Port Trust area, which includes setting up a shiplift and transfer system (Rs 2,295 million), and for general corporate purposes.

CSL is in the process of adding another dry dock (size 310×75/60×13 metres) which will enable it to undertake repairs of vessels such as liquefied natural gas carriers, semi-submersibles, jack-up rigs, and drill ships. The dock depth will be 3 metres with a draught of upto 9.5 metres.

Also, full commissioning of the ISRF at Cochin port with state-of-the-art ship repair facilities will enable Cochin to position itself as a major ship repair hub. CSL’s target is to enhance its ship repair capability by 70-90 ships per annum.

The company plans to expand its capabilities through the proposed dry dock and ISRF, build a strong order book by bidding vigorously for projects to be awarded by the public sector undertakings (PSUs) and the defence sector (pursuant to the Make in India initiative, through which the government is keen to encourage domestic defence manufacturing) strengthen its market leadership by continuously adding upgraded and new vessel models to the offerings and expand customer services.

At present, CSL is undertaking construction work of Phase II of its aircraft carrier, INS Vikrant, involving an investment of Rs 200 billion. The new vessel (scheduled to be operational in 30 months) will strengthen CSL’s execution capability. Once complete, the new carrier will pave the way for building the second indigenous aircraft carrier. It has an order book of about Rs 30 billion (as of March 31, 2017) which is expected to grow further with bids having been placed for projects worth Rs 120 billion.

The way forward

CSL is well-positioned to benefit from the recent Make in India initiative, which is expected to promote domestic defence shipbuilding in the country. Meanwhile, policy initiatives such as granting infrastructure status to shipbuilding, granting the right of first refusal to Indian shipyards for shipbuilding and ship repair work for Indian PSUs and support through the new financial assistance schemes are expected to provide a steady pipeline of orders and become key drivers of growth. Also, CSL has an advantage over other defence PSUs, as it has the capacity to construct certain types of ships especially those of bigger dimensions such as the IAC. However, some of the factors that can affect the shipyard’s growth plans are the dependence of commercial shipbuilding on the growth of the global economy and global economic conditions, dependence on a limited number of customers/ users for a significant portion of revenue, commissioning of the new proposed dry dock or the new ISRF in a timely manner and without cost overruns, among others. Notwithstanding these issues, CSL is bound to grow.


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