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Tebma Shipyard acquisition…
Bharati Shipyard (Bharati) has announced the acquisition of Tebma
Shipyards Ltd. (Tebma) by acquiring 51% equity stake and management
control. Bharati would be infusing fresh equity capital of | 75.8 crore
into Tebma at | 19.20 per share. ICICI Venture was the leading
shareholder in Tebma with 53% stake while original promoters held 5%
stake and the balance 42% was widely held (their stakes would
proportionately reduce). After Tebma was referred to CDR cell for
restructuring of their debt, Bharati was roped in as strategic investor
and acquired 51% stake as part of the re structuring deal. Acquisition of
Tebma would be operationally beneficial for Bharati as it would gain
control of three yards along with an order book size of ~ | 750 crore
and ready clientele. However, financial benefits from the deal would
depend on how soon Bharati is able to turn around Tebma’s operations.
Tebma – Key points
Established in 1984, Tebma is engaged in design and construction of
offshore vessels i.e. PSVs, MPSVs & AHTS vessels. With the acquisition,
Bharati would own and have access to three yards in Tamil Nadu,
Karnataka and Kerala. Tebma currently has an order book of ~| 750 crore
mainly consisting of offshore vessels. Tebma has strategic tie ups with
Austral Ships, Cochin Shipyard, Damen Shipyards and Vik Sandwik.
Along with skilled manpower this would immensely benefit Bharati.
However, loss making operations and negative networth of Tebma is a
cause for concern. Tebma had debt of | 429 crore and contingent
liabilities of | 372 crore on its balance sheet as on March 31, 2010.
Valuation
We have also provided for share of loss from Tebma Shipyards in the
consolidated financials projections for FY11 and FY12 and have
accordingly revised our estimates and price target for the stock. At the
CMP of | 239, the stock is trading at 4.6x FY12E EPS of | 51.8 and 0.63x
FY12E book value of | 379. We have valued the stock on P/BV basis to
arrive at a price target of | 284. We recommend BUY rating on the stock
Benefits
Long operating history
Established in 1984, Tebma is primarily engaged in the design and
construction of vessels catering to the offshore segment viz. PSVs,
MPSVs and AHTS vessels. Initially, the company started operations by
focusing on construction of dredgers but later diversified to build different
types of offshore support vessels. Tebma is the leading supplier of tugs in
India. It has, in the past, successfully delivered various kinds of dredgers
including over 25 crawl cat dredgers domestically and internationally. Till
date, Tebma has constructed 115 vessels in the last 26 years to various
domestic and international clients.
Access to facilities – Three shipyards
Bharati would have ready access to three modern shipyards of Tebma.
Bharati currently owns and operates six shipyards i.e. Ratnagiri,
Ghodbunder, Goa, Kolkata, Mangalore and Dabhol. Except Kolkata yard,
all the other yards are located on the west coast of India. With this
acquisition, Bharati would also have its presence in Tamil Nadu and
Kerala.
Thoraipakkam Tamil Nadu - Head office
The head office of the company is situated in Thoraipakkam in Tamil
Nadu. It is involved in the technical designing work for all its facilities.
Malpe Karnataka - Shipyard
The integrated shipyard at Malpe in Karnataka manufactures PSVs,
MPSVs, AHTS, DSVs and all other OSVs. The facility has a slipway
complex consisting of 14 bays with the capacity to build 10 offshore
vessels per year and repair up to four vessels at a time. The yard can
manufacture vessels up to 90 metre, width 20 metre and draft six metre.
Kochi Kerala - Shipyard
The Kochi yard can produce up to six platform supply vessels per year.
Production at the yard commenced in 2006 and eight PSVs have been
delivered so far from this facility. Another four AHTS vessels are currently
being constructed at the yard.
Chengelpet Tamil Nadu - Shipyard
Chengelpet yard is capable of handling block construction for vessels.
The structural block fabrication and component fabrication facility has
plate press, plate rolling machines and a machine shop.
Capex, expansion completed with state-of-the art facilities
Tebma has also completed the setting up and expansion of its yard
facilities with the establishment of modern shipyards. It has also
completed the capex spend and may not require any other immediate
capex funding. With the acquisition, Bharati would have ready access to
state-of-the art facilities of Tebma.
Strong order book of ~ | 750 crore with diverse client profile
Tebma currently has an order book of ~ | 750 crore mainly consisting of
offshore vessels.
Strategic tie-ups for technology along with trained manpower
Austal Ships
Tebma is associated with Austal Ships for the design, construction,
supply and support of aluminium construction fast patrol boats. The
arrangement would be beneficial in securing naval orders. Currently,
Tebma has a bid for the prestigious Indian Coast Guard project for 36
high speed interceptor boats. These boats will be fully designed and
engineered by Austal, which serves various military and naval
requirements around the world.
Cochin Shipyard and Vik Sandwik
Tebma is also associated with Vik Sandwik and also has an exclusive
MoU with Cochin Shipyards Ltd for construction of offshore support
vessels.
Damen Shipyards
Tebma has a technical cooperation agreement with Europe’s major
shipbuilder Damen Shipyards for design of tugs and technical support in
its construction.
Trained manpower
Tebma has a strong and experienced team of skilled engineers, who have
built numerous offshore support vessels.
Merging of operations to provide synergies
Both yards would be able to gain access to technology, manpower and
management capabilities. This would enable the combined entity to bid
for larger and diversified orders. Synchronisation of operations would
also lead to rationalisation of costs for both shipyards.
Concerns
Loss making operations and negative networth
Tebma has been incurring losses in the last two years and had incurred
losses of | 75.6 crore in FY09 and | 186.5 crore in FY10. Losses in two
consecutive years have led to complete erosion of networth, which has
since become negative.
Balance sheet strained
The balance sheet of Tebma is also strained. This resulted in the company
approaching the corporate debt restructuring (CDR) cell. It was also
reported that the company faced deferment in orders and was
renegotiating with its clients regarding delivery and payment terms.
Tebma had secured and unsecured debt of | 429 crore, as on March 31,
2010. Apart from that, the company also has contingent liabilities of | 372
crore (bank guarantee | 278 crore and letter of credit | 94 crore).
Bharati has failed to procure any significant new build orders in the last
couple of years. This has resulted in the total order book shrinking to |
4998 crore while the order book pending execution has dropped sharply
from | 1920 crore at the end of Q1FY11 to | 1580 crore at the end of
Q2FY11 i.e. a drop of 18% QoQ. Oversupply of vessels would mean that
new build order inflow would remain subdued over the next couple of
years. This would reduce earnings visibility for the company from its core
shipbuilding business. However, acquisition of Great Offshore would be
of immense help to Bharati in the long-term. Great Offshore would
provide diversification and stability of revenues from the steady charter
hire income. It would also provide new shipbuilding opportunities to
Bharati as it undertakes expansion of its fleet.
Acquisition of Tebma would be operationally beneficial for Bharati as it
would gain control of three yards along with an order book size of ~ |
750 crore and ready clientele. However, it would require quite a few years
for the deal to be EPS accretive. Also, financial benefits from the deal
would depend on how soon Bharati is able to turn around the operations
of Tebma.
We have also provided for share of loss from Tebma Shipyards in the
consolidated financials projections for FY11 and FY12 and have
accordingly revised our estimates and price target for the stock. At the
CMP of | 239, the stock is trading at 4.6x FY12E EPS of | 51.8 and 0.63x
FY12E book value of | 379. We have valued the stock on a P/BV basis to
arrive at a price target of | 284. We recommend BUY rating on the stock.
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