Pipavav Defence and Offshore Engineering - Performance on expected lines - Kotak

PDO reported revenue of Rs 6.2 bn growing 38% YoY but falling 7% QoQ. EBIDTA was reported at Rs 1.41 bn translating into operating margin of 22.7% for the company. Interest and depreciation continue to be high for the company as it pursues its capex programme. Consequently it reported PAT of Rs 100 mn. Now it is looking to sell around 10% stake to a strategic partner and would utilize the proceeds to convert the second wet dock into a dry dock. It has also delivered three 74,500 DWT Panamax Bulk Carrier to Golden Ocean of Norway and we estimate the company to execute the entire order book of Rs 106 bn by December 2016.

We continue to believe that PDO is well placed to exploit the massive opportunity that India's defense sector offers in the next few years. It has global-sized assets and best-in-class tie-ups. Also, PDO offers the only credible large-size exposure for investors to India's defense business. We estimate net profit at Rs 1.9 bn for FY13 and Rs 2.3 bn for FY14, translating into an EPS of Rs 2.8 for FY13 and Rs 3.4 for FY14. It trades at 25 times FY14E PE, which we believe is fully valued considering its replacement cost.

We reiterate ACCUMULATE rating on the stock with a TP of Rs 92.

Source : Equity Bulls

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