Garden Reach Shipbuilders & Engineers Limited IPO

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Garden Reach Shipbuilders & Engineers Limited IPO

(i) Garden Reach Shipbuilders & Engineers Limited was incorporated at Calcutta on February 26, 1934. The Company is a shipbuilding company in India under the administrative control of the MoD and primarily adhere to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. In addition to the ship and warship building capabilities, they are engaged in engineering and engine production activities. As a part of the engineering division, they manufacture deck machinery items, pre-fabricated portable steel bridges, and marine pumps. Their shipbuilding division contributes a significant majority of their revenue from operations. They have derived 81.23%,75.10%, 79.09% and 83.33% of their gross revenue from operations on September 30, 2017, Fiscals 2017, 2016 and 2015 respectively from their shipbuilding division.

(ii) Over the years, the Company has established capabilities for in-house design and shipbuilding and has made considerable contributions to the indigenous warship construction program of the country. The shipbuilding product line spans from technologically sophisticated Frigates and Corvettes to Fast Patrol Vessels.

(iii) In the last five (5) decades, they have built and delivered ships ranging from small to large and advanced vessels including frigates, anti-submarine warfare corvettes, missile corvettes, landing ship tanks, landing craft utilities, survey vessels, fleet replenishment tankers, fast patrol vessels, offshore patrol vessels, inshore patrol vessels, WJ-FAC, hover crafts and fast interceptor boats to the Indian Navy, Indian Coast Guard, MHA and Governments of other countries. They have built and supplied more than seven hundred fifty (750) vessels to carry men and materials as well as for the surveillance of the coastline.

(iv) Presently, they have three (3) separate facilities for shipbuilding, all of which are located in close vicinity of each other at Kolkata, India. They build their ships at the Main Works Unit and the Rajabagan Dockyard. The third facility, the FOJ Unit is primarily used for fitting out and repair of ships. They acquired the Rajabagan Dockyard from Central Inland Water Transport Corporation Limited in the year 2006. The DEP Unit in Ranchi is engaged in the testing and overhauling of marine propulsion engines and assembly of semi-knocked down units of diesel engines.The Engineering segment is engaged in the manufacturing and fabrication of portable steel bridges, deck the machinery of ships and marine pumps.

(v) Interaction with management

Objects of the Garden Reach Shipbuilders & Engineers Limited IPO:

Objective of Garden Reach Shipbuilders & Engineers Limited IPO are: (i) To carry out the disinvestment of 20,046,600 Equity Shares by the Selling Shareholder (ii) to achieve the benefits of listing the Equity Shares on the Stock Exchanges. Our Company will not receive any proceeds from this Offer and all proceeds shall go to the Selling Shareholder.

Garden Reach Shipbuilders & Engineers Limited IPO Details:

Open Date: Sep 24 2018
Close Date: Oct 01 2018
Total Shares: 29,210,760
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Built Issue IPO
Issue Size: 339.39 Cr.
Lot Size: 120 Shares
Issue Price: ₹ 115-118 Per Equity Share
Retail Discount: 5
Listing At: NSE,BSE
Listing Date: Oct 09 2018

Promoters And Management:

Promoters of Garden Reach Shipbuilders & Engineers Limited Company are: Our Promoter is the President of India, acting through the Ministry of Defence. Our Promoter, along with its nominees, currently holds 100% of the pre-Offer paid-up Equity Share capital of our Company

Company Business:

(i) The business of Garden Reach Shipbuilders, in terms of both revenue and expenses, is highly cyclical in nature. (ii) The shipbuilding projects have a typical order-to-delivery period of anywhere from twenty-three (23) to sixty-six (66) months. The longer projects are typically the more expensive projects, and the recognition of revenue and expenses occurs in large parts during the middle period of the project, when expensive equipment and sophisticated systems are installed in the vessels. (iii) The beginning period of a project and the end period of a project give rise to significantly lower revenue and expense recognition as compared to the middle period of the project. As a result, the revenue and expense recognition of the Company is heavily weighted toward five (5) year cycles of one (1) to two (2) year periods of lower revenue and expense recognition, followed by one (1) to two (2) year periods of significantly higher revenue and expense recognition,followed again by one (1) two (2) year periods of lower expense recognition. That is why see heavy fluctuations in the financials of the company in the DRHP in last 5 years. (iv) The company sought to mitigate this cyclic nature through diversification of their product portfolio, but for the foreseeable future, the contracts for construction of naval vessels will result in a continuation of this revenue and expense cycle playing a significant part of the financial results.

Capital Structure:

(i) Authorized Share Capital 125,000,000  shares at FV@10) 125 Cr
(ii) Issued, Subscribed,& Paid-up Share Capital Before Issue (114,552,000  Shares at FV@10) 114.552 Cr
(iii) Present Issue OFS to public (  29,210,760  Shares at FV@10) 25.5% of Paid up capital
(iv) Present Issue OFS to Employees ( 572,760  Shares at FV@10) .5% of Paid up capital
(v) Reservation for QIB  (14319000 Shares at FV@10) 50%
(vi) Reservation for HNI  (4295700 hares at FV@10) 15%
(vii) Reservation for Retail  (10023300 Shares at FV@10) 35%
(viii) Paid Up Share Capital after the issue 114.552 Cr

Financials of Garden Reach Shipbuilders & Engineers Limited IPO:

1. Assets and Liabilities Key Parameters
Year Asset(M) Liabilities(M) Net Worth(M) Book Value Liability/Equity RONW
FY15 40,009.75 29,941.51 10,068.24 81 2.97 5%
FY16 44,538.91 33,172.36 11,366.55 92 2.92 14%
FY17 45,666.35 34,834.91 10,831.44 87 3.22 1%
FY18 42,602.33 32,442.96 10,159.37 89 3.19 9%
2. Profit n Loss Key Parameters
Year Revenue(M) PAT(M) EBITDA Margins Profit Margins Outstanding Shares( M) EPS
FY15 16,294.43 458.04 7.5% 3% 123.84 4
FY16 18,560.56 1,596.41 15.0% 9% 123.84 13
FY17 11,463.12 116.9 5.0% 1% 123.84 1
FY18 15,257.50 943.56 19.0% 6% 114.552 8
3. Cash Flow Statement(all figures in Million)
Particulars FY18 FY17 FY16 FY15
(i) Net Cash Generated from Operation -740.15 -1,912.17 4,230.24 1,074.49
(ii) Net Cash Generated from Investment 2,673.71 2,268.17 -4,832.47 100.65
(iii) Net Cash Generated from Financing Activity -1,933.15 -499.99 -295.8 -184.37
(iv) Total[ (i)+(ii)+(iii) ] 0.41 -143.99 -898.03 990.77
(v) Cash and Cash Equivalent (Opening) 118.49 262.48 1,160.51 169.55
(vi) Cash and Cash Equivalent (Closing) 118.90 118.49 262.48 1,160.32
Key Notes: a) The Growth in Revenue and PAT can't be judged properly due to cyclical nature of the business as discussed earlier in the article. b) The last three years Average EPS is used due to cyclic nature business = 7.33 d) P/E= 16 [ Reasonably Priced] e) P/B(post issue)= 1.32 [Reasonably Priced] f) D/E(post issue) = 0.49 [Manageable] g) Mcap/Sales(ideally <2)= 0.88 on FY18 Income [Reasonable priced]

Recommendation on Garden Reach Shipbuilders & Engineers Limited IPO:

Review and Recommendation of Garden Reach Shipbuilders & Engineers Limited IPO from IZ team is: 4/10 [The Issue is reasonably priced at P/E of 16 and Mcap/Sales=0.82. However, due to the cyclic nature of the business, the Revenue and PAT would remain up and down. The recently listed company Cochin Shipyard is dwindling below the issue price. The listing gain can be accepted but certainly not a long-term bet]

Lead Manager of Garden Reach Shipbuilders & Engineers Limited IPO:

  1. IDBI Capital Market Services Limited
  2. Yes Securities (India) Limited

Registrar of Garden Reach Shipbuilders & Engineers Limited IPO:

  1. Alankit Assignments Limited

Company Address:

Garden Reach Shipbuilders & Engineers Limited 43/46 Garden Reach Road, Kolkata – 700 024, West Bengal, India Phone No.: 033-2469 8545 Fax No. 033-2469 8150 Email: co.sec@grse.co.in Website: www.grse.in

Bid Details of Garden Reach Shipbuilders & Engineers Limited IPO as on
01-Oct-2018 17:00:00 IST

No.of shares offered No. of shares bid No. of total times
14,319,000 25,932,000 1.81
4,295,700 1,315,080 0.31
10,023,300 2,430,240 0.24
572,760 81,600 0.14
- - -
29,210,760 29,758,920 1.02
No.of shares offered No. of shares bid No. of total times
14,319,000 11,101,440 0.78
4,295,700 21,240 -
10,023,300 1,588,440 0.16
572,760 72,360 0.13
- - -
29,210,760 12,783,480 0.44
No.of shares offered No. of shares bid No. of total times
14,319,000 14,830,560 1.04
4,295,700 1,293,840 0.30
10,023,300 841,800 0.08
572,760 9,240 0.02
- - -
29,210,760 16,975,440 0.58

Discussion on Garden Reach Shipbuilders & Engineers Limited IPO:

      You must not have received the IPO Allotment. You should feel lucky that you didnt get the IPO in this market situation.

      See the listing price. I told u that you would be lucky.

    State Bank of India is not allowing with drawl of this IPO despite the date been extended. Anyone has solution?

    *Garden Reach IPO extended*
    Initial Price band 115-118, now revised to 114-118

    Date extended till 01-Oct-2018, Monday

    Dear Admin,

    Apply kare k nahi??

    As per price band with discount, can expect for listing gain.

    Garden Reach IPO
    Defence contractor. Past performance of defence contractors are not good though thousands of crore order book i. e. Cochin Shipyard, BDL, HAL. I am avoiding this IPO.

    How Revenue is recognised for Work in Progress Vessels?

    (i) The Company generally accept orders for construction of vessels to be delivered up to twenty-three (23) months to sixty-six (66) months from the date of the order. So the question here is how Revenue is recognized for work-in-progress vessels. Let us see.

    a) Cost Plus Contracts:

    “At cost incurred plus profits accrued up to the reporting date as per Contract / Letter of Intent.”

    b) Fixed Price Contracts:

    How profit is reliably measured:

    “At costs incurred up to the reporting date plus profits recognized under percentage completion method in the proportion, the actual costs incurred bear to the estimated total cost to completion as on that date”.

    How the loss is anticipated:

    “When it is probable that total contract costs will exceed the total contract revenue, the expected loss is fully recognized as an expense immediately, irrespective of physical progress achieved on the reporting date.”

    (ii) The aggregate order book as on July 31, 2018, was ₹203,136.10 million, comprising gross order value in the shipbuilding segment, engineering segment and the engine segment of ₹200,294.20 million, ₹851.70 million and ₹1,990.20 million, respectively.

      Just wait for the Grey Market Activity to star. However, as an IPO is priced at a good valuation so listing gains will definitely be there.

    The Revenue and Profit have shown degrowth in last 5 years. The Revenue which was close to 1600 Cr in FY13 has reduced to 1525 Cr in FY18. The Profit margins have also gone down from 8% in FY13 to 6% in FY18. So overall performance is not good. The recent listing of Cochin Shipyard IPO which was also a govt entity in the business of shipbuilding is available below issue price. Hence nothing much to entice in the business.

    As of 31st July 2018, the company has a total debt of 500 Cr. The total equity is 1015.9 Cr.
    So D/E is .49.( Quite Manageable).

    The Company’s clients are Indian Navy and Coast Guard. The shipbuilding division contributes around 80% of the business.

    The company has a strong order book of ₹20313 Cr as on July 31, 2018, comprising gross order value in the shipbuilding segment, engineering segment and the engine segment of ₹20029 Cr, ₹85 Cr, and ₹1,99 Cr, respectively.

    The company has three business units namely Main Works Unit, FOJ Unit, and DEP unit.

    (i) Main Works Unit– This unit allows the company to use modular construction when building warships, which enable them to reduce the shipbuilding period, improve quality through the implementation of integrated construction technology, and to construct ships in line with the global practices in the shipbuilding industry. The facilities allow them to produce eight (8) large ships and twelve (12) medium/ small ships concurrently.[ Shipbuilding segment]

    (ii) FOJ Unit– Main Works Unit is supported by the FOJ Unit, which is dedicated to fitting out and repair of ships.[Engineering segment ]

    (iii) DEP Unit – It is a state-of-the-art diesel engine assembly shop that carries out overhaul and assembly of engines in a dust-and-moisture-proof environment[ Engine Segment]

    EPS Story of the Garden Reach based on FY18 Financials

    (i) PAT= 94.3 Cr
    (ii) No. of Outstanding Shares= 11.4552 Cr
    (iii) EPS= 8.23
    (iv) P/E= 14.337

    Conclusion- The Pricing has been done at reasonable valuations.

    It is a pure Offer for Sale of 29,210,760 Equity Shares by the Govt of India at the face value ₹10 each. The Issue is priced at 115-118 with a retail discount of Rs.5 per Share.

      The growth of the company in the last 5 years is negative. So the prediction of the future is difficult.