[Investors Please Listen] Pipavav Shipyard IPO : we recommend ‘AVOID’ subscription. We would prefer an entery point closer to that by co-promoter Punj Lloyd.

Pipavav Shipyard
 
Steeply Priced

Pipavav Shipyard Ltd (PSL) is setting up India's largest shipyard with unmatched state-of-the art facilities. On completion, PSL will be able to construct, fabricate and repair a range of vessels in the merchant, offshore and defence sectors. We maintain a negative outlook on the global shipbuilding industry. However, we believe that PSL, with its world-class facilities and capability to handle large sized vessels, is best placed amongst its Indian counterparts to tap the huge opportunity (at Rs150-200 bn pa) in the Indian defence sector. Further, offshore fabrication and ship repair also present a lucrative opportunity. However, these could witness slow ramp up and initial teething troubles. Further, only 52% of PSL's Rs45.0 bn order book is firm, with orders worth Rs18.0 bn under negotiation or arbitration. Since PSL has recently commenced operations in FY10 (Apr'09), we have valued PSL on EV/Order book. At the higher end of the band (Rs60/Share), PSL shall command an EV/Order book multiple of 1.1X, much higher than peers ABG Shipyard (0.2X) and Bharati Shipyard (0.3X). At P/BV of over 2.0X, PSL is at a significant premium to its Indian counterparts, ABG Shipyard (1.5X), Bharati Shipyard (0.8X) and global peers. Given its expensive valuations, we recommend 'AVOID' subscription. We would prefer an entery point closer to that by co-promoter Punj Lloyd.

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