Bharati Shipyard
Awaiting orders
Capex update: Bharati Shipyard’s (BHSL’s) capex at Dabhol is 75-80% complete and is
currently building the jackup rig as well as 6 cargo vessels at the facility. The
company has not started using the floating dock for repairs as it will be used to launch
the rig. However, post FY12, the ship repair is likely to contribute to business.
Mangalore Phase-1 expansion is also underway, which is likely to be complete over
the next couple of years. Rs1.5-2bn shall be spent on the same and the capacity post
Phase-1 shall be 36,000DWT. Phase-2 capex will be undertaken post market revival
after which the capacity shall be expanded to 60,000DWT.
Outlook on orders: As per the management, though the quantum of enquiries has
seen a substantial increase, customers are still waiting for some clarity on the
changes in regulations, post the BP oil spill. Hence, the next couple of quarters may
look lackluster. Defence appears to be a huge opportunity as per BHSL, where tenders
of over Rs70bn have been floated. ‘High Precision Offshore Structures’ is also a large
opportunity for the company, where BHSL shall build the offshore structures and
Great Offshore (GOFF) shall install the same. BHSL’s Dabhol facility has been certified
by ONGC to carry out Offshore Structure Installation.
The company’s current unexecuted orderbook stands at Rs19.2bn which translates
into an order book/sale of 1.3x FY11.
Status of rig: The rig, which the company is currently building for GOFF, is nearly
complete. However, the same shall be launched only once GOFF secures a contract
for the same. As per the management, the delay in building the rig was due to late
payments, which resulted in delayed supply of components as it missed its scheduled
slot.
Subsidy disbursement & new scheme: As per the management, the movement on
subsidy disbursement has been significant and expects to receive their first disbursal
shortly. It expects a total of Rs1bn in FY11, while Rs2.5bn stands due from the
government. The total subsidy that the company is eligible for based on its current
book stands at Rs10bn. Further, the management claims that the new subsidy policy is
also in the advanced stages of discussion.
Debt repayment: BHSL’s total debt stands at Rs23bn. The major repayments falling
due in FY11 is the FCCB which is to the tune of ~Rs3bn. This shall be repaid by taking
fresh debt on the company’s book. Hence, the total debt amount shall remain status
quo; however, the interest cost shall witness an increase. For FY12, Rs2.5bn fall due
for repayment shall be paid from the subsidy money received as well as internal
accruals.
GOFF update: BHSL’s stake in GOFF stands at Rs4.1bn for which it has spent a total of
Rs8.3bn. As per the management, GOFF’s focus is on acquiring assets available at
attractive prices. FY12 is likely to be a strong year for GOFF as the 6 new assets
acquired will be deployed for the entire year along with deployment of the new rig as
well re-pricing of certain contracts. We expect PAT growth of 30% to Rs3.09bn in
FY12.
Valuations: We are valuing BHSL’s standalone business based on 6x EV/EBITDA FY12e.
From the company’s EV, we are deducting debt of Rs8.3bn, which reflects its
investment in GOFF. The standalone value of BHSL stands at Rs5.2bn which translates
to Rs165/share. Further, we are valuing GOFF at 6xFY12 EV EBITDA. BHSL’s 49.7%
stake, thereby, stands at Rs12.4bn, of which we deduct the debt of Rs8.3 taken by
BHSL for the acquisition which gives a value of Rs4.1bn. Post a 10% holding company
discount, the value per share translates to Rs118. Our SOTP based price target for
BHSL, thereby, stands at Rs284. We maintain ‘BUY’ rating on the stock.
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