Mazagon Dock Shipbuilders Ltd - IPO Review - ICICI Securities

Mazagon Dock Shipbuilders (MDL) is a DPSU under Ministry of Defence (MoD) with maximum capacity of ~40000 DWT, engaged in construction, repair of warships and submarines for MoD. It is India's only shipyard to have built destroyers and conventional submarine for Indian Navy and one of the initial shipyards to manufacture corvettes in India. It primarily operates in two divisions viz i) shipbuilding under which it is currently building four P-15 B destroyers, four P-17A stealth frigates and ii) submarine & heavy engineering division under which it is currently building or in the process of delivering four Scorpene class submarine under transfer of technology from Naval group, France and a medium refit & life certification submarine.

Investment Rationale

Strong order book to provide long term revenue visibility...

MDL's order book as on July 31, 2020 from its shipbuilding and submarine & heavy engineering segment is at Rs. 54074 crore comprising three major shipbuilding projects and two submarine projects. The strong order book provides long term revenue visibility. MDL expects to have a decent order pipeline in the next one to three years with several projects lined up from Indian Navy and Indian Coast Guard worth ~between Rs. 20000 and Rs. 30000 crore. MDL believes it has the competitive advantage for mega projects like six P-75i conventional submarine project (~Rs. 45000 crore) and six new generation destroyers (~Rs. 50000 crore) to be finalised over the next three to four years. MDL is the only player to have earlier built these types of ships and submarines in India.

Superior infrastructure facilities, to provide significant edge

MDL has undertaken and competed the "Mazdock Modernisation Project", which comprises of new wet basin, goliath cranes, module workshop, cradle assembly shop, store building and associated ancillary structures enabling modular integrated construction that would substantially reduce the built period in future. Post completion of modernisation, the outfitting warship capacity increased from eight warships to 11 warships since 2014 and submarine capacity from six submarines to 11 submarines since 2016. The infrastructure and facilities available with MDL combined with its vast expertise would provide a significant edge over its domestic peers.

Priced at P/E of 6.1x (post issue) FY20 on upper band

MDL being the only shipbuilder to have built destroyers and conventional submarines could have an edge in future orders. Considering the strong order book, superior infrastructure facilities, debt free status, one can expect better growth outlook for the company in the long run. At the higher end of the price band of Rs. 145, the stock is available at a P/E of ~6.1x (on post issue basis). We recommend SUBSCRIBE on the issue with a view of listing gains.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_MazagonDock_IPOReview.pdf

Source : Equity Bulls

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