Cochin Shipyard - Q2FY21 - First Cut - Strong OCF; PAT in line - YES Securities

Q2FY21 Standalone result highlights

- Operating cash flow for H1FY21 was at Rs14bn vs negative Rs448mn in H1FY20 primarily led by i) Improvement in other current assets by Rs2.3bn & ii) Increase in other current liabilities by Rs11bn. Cash & cash equivalent was at Rs34bn as on September 2020 vs Rs22bn as on March 2020.

- Revenues from operations de-grew 32% yoy to Rs6.6bn (-14% vs our est.) as shipbuilding/ ship repairing revenues were down 29%/49% yoy respectively owing to Covid related disruptions.

- EBITDA margins came in at 19.1% (+298bps vs our est.), 206bps yoy on the account of negative operating leverage & lower ship-repairing revenues. EBITDA came in line with our estimates.

- Shipbuilding EBIT margin stood at 21.7%, down 50bps yoy while ship-repairing EBIT margin was at 27.4%, down 370bps yoy.

- Other income came in at Rs453mn, down 43% yoy.

- PAT reported decline of 48% yoy (in line with our est.).

- Inventory, Debtors & Creditors was at 52/43/68 days respectively.

- During Q2FY21 in order to meet the challenges facing the Company, the Company extended hours of operations by working in two shifts. This has impacted depreciation to the tune of Rs13.5mn during the quarter.

- In compliance with the NCLT Order, Cochin Shipyard Limited (CSL) paid the bid amount for takeover of TSL on September 15, 2020 with effect from which TSL has become a wholly owned subsidiary of CSL.

- CSL is expanding geographically and has commenced Ship Repair Units at Mumbai, Kolkata & Port Blair in addition to its Kochi facilities. CSL is also setting up fully owned subsidiary shipyards at Kolkata (named HCSL) and at Malpe, Karnataka (named TEBMA Shipyards Limited) to cater to the construction of small & medium vessels as well as inland water vessels.

Our view - We have a 'Buy' rating with TP of Rs429 & would be finetuning our estimates post interaction with mgmt. The stock is currently trading attractively at P/E of 8.3x/7.8x FY21E/FY22E earnings respectively. Earning conference call details awaited. CSL is targeting to increase its ship repairing (SR) market share through new initiatives like repairs of oil rigs and merchant vessels at Mumbai Port, A&N admin, Kolkata port and Hooghly-CSL JV. It expects SR revenues of Rs10bn+ with margins of 25% beyond FY23. It has shipbuilding revenue growth visibility till FY23 due to planned execution of Rs65bn from IAC contract. We think new large ticket order inflow would be critical for its long-term growth.

Source : Equity Bulls

Keywords