Ship Building
End of tug of war
| ABG Shipyard |
| Bharati Shipyard |
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| SELL |
| HOLD |
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| CMP: Rs 214 | Target Price: Rs 182 | CMP: Rs 208 | Target Price: Rs 206 |
Bharati Shipyard (BSL) has come out tops in the race to acquire control over Great Offshore (GOL) – as envisaged by us (refer report dated 29 Jun '09 – Bidding War). This follows ABG Shipyard (ABGS) sale of its entire stake in GOL for a consideration of Rs1.8 bn. BSL plans acquire 21.1% stake in GOL (of undiluted share capital) at offer price of Rs590 and increase its stake to 44.3%. We reiterate long term benefits to BSL from above deal - (1) diversification from cyclical shipbuilding business and (2) benefits of captive customer base. However, increased leverage (DER up from 1.0X to 1.9X) has increased medium term risks to earnings. We continue to maintain a negative view on the global shipbuilding industry amidst no signs of revival in demand and expected round of cancellations and delays / postponement in order execution. We have revised BSL's SoTP target price to Rs206, split as (1) Rs88 for core shipbuilding business and (2) Rs118 for 44.3% stake in GOL - @7X FY11E earnings adjusted for interest. We have also revised ABGS target price to Rs182 per share (DCF Based), factoring benefits from reduced leverage.
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