FDI in defence: Shot in the arm for PDOECL!!!
• Pipavav Defence and Offshore Engineering Co (PDOECL) reported
Q1FY15 results with revenues at | 316.5 crore against | 450.7 crore
in Q4FY13 and | 702.8 crore in Q1FY14. Revenues declined ~30%
QoQ and 55% YoY as income from trading was at | 18.2 crore vs.
| 94.3 crore in Q4FY14 and | 175.2 crore in Q1FY14
• EBITDA for the quarter was flattish QoQ whereas it declined 7% YoY
to | 140.5 crore. However, the EBITDA margin (including subsidy)
expanded nearly 2289 bps YoY and 1330 bps QoQ to 44.4%
• On a PAT basis, PDOECL reported a net profit of | 5.6 crore vis-à-vis
| 1.3 crore in Q4FY14 and | 7.3 crore in Q1FY14
Unparalleled infrastructure creates PDOECL’s moat
PDOECL spanning over 861 acres of land with two dry docking facilities of
662 m x 65 m (Dry Dock-1) and 750 m x 60 m (Dry Dock-2 under
construction) is one of the largest “modular” shipbuilding facilities in
India. The shipyard is capable of accommodating 400,000 dwt capacity
ships along with construction and repair of a wide range of vessels
starting from coastal and naval vessels together with repair and
fabrication of offshore platforms and rigs. It also has a dedicated offshore
yard with 175 m x 16.89 m quay consisting of both launching and loading
platform together with installation of bollard and mooring rings.
Strategic tie-ups attuned to capture any forthcoming opportunity
PDOECL formed a joint venture with Mazagaon Dock (MDL) providing
exposure to MDL’s ~$20 billion order book to capture the defence
shipbuilding opportunity in the country. Further, to enhance its position,
PDOECL formed strategic tie-ups with a slew of foreign partners to
provide integrated solution. PDOECL’s tie-up with multinational players
like SAAB, DCNS, Babcock, etc. provides depth to domestic defence
shipbuilding capacity. Further, the government raised the FDI cap from
26% to 49% with its focus on enhancing indigenous capacity and
capability of defence shipbuilding. Hence, PDOECL with its robust
infrastructure may be a prime candidate for stake sale and, thereby,
significantly de-leverage itself.
FDI in defence and indigenisation thrust continue to drive valuation
Though revenue for shipbuilding grew at a CAGR of 21% over FY12-14,
PAT posted a decline of ~66% CAGR over the same period largely due to
high leverage and depreciation. However, going forward, as the
government has approved 49% FDI in defence and is expediting
indigenisation of defence procurement, PDOECL stands at a vantage
point for the same owing to its superior infrastructure. Further, in light of
revenue visibility due to orders in the defence & offshore segment and
supported by current buoyant circumstance, we continue to assign a
P/BV multiple of 2.5x (four year average) to FY16E book value of | 32.2 to
arrive at target price of | 80. We have a BUY recommendation on the
stock.
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• Pipavav Defence and Offshore Engineering Co (PDOECL) reported
Q1FY15 results with revenues at | 316.5 crore against | 450.7 crore
in Q4FY13 and | 702.8 crore in Q1FY14. Revenues declined ~30%
QoQ and 55% YoY as income from trading was at | 18.2 crore vs.
| 94.3 crore in Q4FY14 and | 175.2 crore in Q1FY14
• EBITDA for the quarter was flattish QoQ whereas it declined 7% YoY
to | 140.5 crore. However, the EBITDA margin (including subsidy)
expanded nearly 2289 bps YoY and 1330 bps QoQ to 44.4%
• On a PAT basis, PDOECL reported a net profit of | 5.6 crore vis-à-vis
| 1.3 crore in Q4FY14 and | 7.3 crore in Q1FY14
Unparalleled infrastructure creates PDOECL’s moat
PDOECL spanning over 861 acres of land with two dry docking facilities of
662 m x 65 m (Dry Dock-1) and 750 m x 60 m (Dry Dock-2 under
construction) is one of the largest “modular” shipbuilding facilities in
India. The shipyard is capable of accommodating 400,000 dwt capacity
ships along with construction and repair of a wide range of vessels
starting from coastal and naval vessels together with repair and
fabrication of offshore platforms and rigs. It also has a dedicated offshore
yard with 175 m x 16.89 m quay consisting of both launching and loading
platform together with installation of bollard and mooring rings.
Strategic tie-ups attuned to capture any forthcoming opportunity
PDOECL formed a joint venture with Mazagaon Dock (MDL) providing
exposure to MDL’s ~$20 billion order book to capture the defence
shipbuilding opportunity in the country. Further, to enhance its position,
PDOECL formed strategic tie-ups with a slew of foreign partners to
provide integrated solution. PDOECL’s tie-up with multinational players
like SAAB, DCNS, Babcock, etc. provides depth to domestic defence
shipbuilding capacity. Further, the government raised the FDI cap from
26% to 49% with its focus on enhancing indigenous capacity and
capability of defence shipbuilding. Hence, PDOECL with its robust
infrastructure may be a prime candidate for stake sale and, thereby,
significantly de-leverage itself.
FDI in defence and indigenisation thrust continue to drive valuation
Though revenue for shipbuilding grew at a CAGR of 21% over FY12-14,
PAT posted a decline of ~66% CAGR over the same period largely due to
high leverage and depreciation. However, going forward, as the
government has approved 49% FDI in defence and is expediting
indigenisation of defence procurement, PDOECL stands at a vantage
point for the same owing to its superior infrastructure. Further, in light of
revenue visibility due to orders in the defence & offshore segment and
supported by current buoyant circumstance, we continue to assign a
P/BV multiple of 2.5x (four year average) to FY16E book value of | 32.2 to
arrive at target price of | 80. We have a BUY recommendation on the
stock.
LINK: http://content.icicidirect.com/mailimages/IDirect_PipavavDefence_Q1FY15.pdf
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