ABG Shipyard (ABGS) has bought additional 0.15 mn shares (0.4% share) in Great Offshore (GOL) for a total consideration of Rs75 mn (at average price of Rs498.4 per share). Thus, it has increased its stake in GOL to 8%. Following the above acquisition, ABGS has increased the open offer price from Rs450 to Rs520 per share. ABGS's offer price is at a premium of 29% over Bharati Shipyard's (BSL) offer price of Rs403 per share.
Post the above increase in open offer price, ABGS cost of acquiring 33.8% interest in GOL has increased from Rs4.7 bn (at Rs375/Share) to Rs6.5 bn, while its DER would increase from 1.6X to 2.6X (pre QIP). We believe that the bidding war between ABGS and BSL is likely to intensify given ABGS aggression and BSL's (1) current stake in GOL at 19.5% Vs ABGS 8% and (2) existing business interests. This is likely to significantly increase the cost of acquisition, negatively impacting the attractiveness thereof. However, the long term interests are likely to remain intact.
At CMP, the stock is trading at 5.0X FY10E and 4.4X FY11E earnings of Rs41.3 and Rs46.1 per share respectively. We have a 'REDUCE' rating on the stock with a target price of Rs148 (DCF valuation for existing shipbuilding business).
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