Reliance Defence

Pipavav Shipyard is entering the capital market on 16^th September 09, with a public issue of 8.55 crores equity shares of Rs. 10 each, in the band of Rs. 55 to Rs. 60 per share.

The company has commenced its operations from 1^st April 2009, with business of ship construction and repairs for a range of vessels of different sizes and types, including naval vessels and coast guard vessels as well as the fabrication and construction of offshore platforms, rigs, jackets and vessel for oil and gas companies. The company would be building assets, for the first time in the country, on modular concept, using its state of the art, 2 million sq. feet block making facilities, which would reduce building time considerably with saving in steel wastage by about 80%. Steel churning capacity for building offshore and warships is at 1,44,000 TPA, which is about 10 times bigger than the next largest shipyard in the country, being 14,000 TPA, of Cochin Shipyard. The facilities of the company are even capable to build super critical boilers, nuclear power equipments and is capable of handling multiple products such as Aircraft Carriers, Warship, FPSO, Rigs, Jack-ups, platforms, VLCC, and ULCC. It has capability to even dock 2 Naval Air Craft Carriers simultaneously, one each for building and one for repair.

The company has 2^nd largest dock in the world, after Hyundai, with the company having 782 acres of land, of which 498 acres have been developed, with 662 meters in length and 65 meters in the width of dry dock, with waterfront length of 4.2 kms. As against this, Hyundai has 800 acres of land, at 7 locations, with length of 4.8 km. This has been confirmed by Hyundai by its letter of 03-06-09, comparing it with its latest and modern facilities in Ulsan at Korea. Thyssenkrupp Marine has called the shipyard of the company - "wow" and called its block making workshops and of shipyard with dry dock facilities, as best available in India, but comparable to western standards.

Presently, 85% of the country's Defence needs are met from countries like Russia, France, Germany, UK and Italy, as world class facilities are not available, with Mazgaon Dock, Goa Shipyard and Kolkatta Dock, presently catering to Indian Navy and Ministry of Defence. Also, the company has largest dockyard infrastructure facilities between Singapore and Dubai, where about 16,000 ships pass trough annually and one of them can become an emergency candidate, of dry-docking. So, the company would be focusing on Navy, ONGC and global jobs, which has much higher margins, then the conventional ones. The company had seen visits of top officials and chiefs of Indian Navy, Mazgoan Dock, ONGC, BHEL, Indian Coast Guard and Naval Design who were highly impressed and satisfied with the infrastructure and facilities of the company.

Present equity of the company of Rs. 580 crores will rise to Rs. 666 crores, with its pre-issue net worth of Rs. 1,255 crores, with book value being placed at Rs. 21.63 as on 31-03-09. The total facilities and cost of the project is estimated at Rs. 2,995 crores, which is being financed by the term loan of Rs. 1,312 crores, present net worth of Rs. 1,260 crores and proposed IPO of Rs. 500 crores. This results in a debt equity ratio of 0:75:1 which can be considered quite reasonable and within the comfort levels. To replicate the similar facilities, it would take atleast 5 years, including obtaining all permissions, which would give a first mover advantage to the company.

Considering all these, we recommend subscribe to the issue, even at the upper band of Rs. 60 per share.