Banking on order book…
ABG Shipyard Ltd (ABG) has performed extremely well in the last one
year with 28.3% revenue growth and 27.4% PAT growth. With the
ramp-up in yard capacities at Dahej and Surat, ABG has increased the
pace of order execution in the last one year. This has helped the
company to book higher revenues in FY10. ABG is expected to maintain
its growth pace over the next two years as incremental capacity gets
added and order execution gains pace.
The order book pending execution is almost 4x FY10 sales. This
provides comfort and would also ensure revenue growth over the next
two years on the back of stable order execution. However, globally
oversupply of vessels has resulted in a drying up of new build orders for
shipyards globally. ABG has also received marginal orders in the last 1.5
years. This reduces the earnings visibility for the company over the
long-term as revenues are expected to peak in FY12. However, post that
a steady decline is expected in both topline and bottomline.
Operating performance expected to be stable
ABG Shipyard has a sizeable order book and its execution would ensure
steady revenue growth over next two years. We expect revenues to rise
from | 1812 crore in FY10 to | 2299 crore in FY11 and further to | 2613
crore in FY12. However, the operating margin is likely to moderate from
26% in FY10 to 21% in FY12 on account of a rise in raw material costs.
The company has almost completed its capex spend at the Dahej and
Surat yards. As debt repayments get under way, we expect the debtequity
ratio to improve from 1.9 to 1.3 over the next two years.
Valuation
We have valued ABG Shipyard at 0.80x FY12E P/BV to arrive at a price
target of | 241. We maintain our REDUCE rating on the stock.
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