Tuesday, April 25, 2017

Cochin Shipyard Gets SEBI Nod - 10 Points to Note

Madhu S Nair, Chairman & Managing Director, Cochin Shipyard Ltd.
By John Antony:

Cochin Shipyard Ltd (CSL) has received market regulator SEBI's approval for its proposed Initial Public Offering (IPO). 

CSL the largest shipyard in India by dock-size and the second-largest by revenue has been preparing for its IPO. The only consistently profitable shipbuilder in the country, CSL had earlier filed its Draft Red Herring Prospectus (DRHP). The proposal is to issue an IPO of 3,39,84,000 equity shares of Rs.10 each amounting to an equity capital of Rs.33.984 crore. It comprises fresh issue of 2,26,56,000 equity shares and sale of the Government of India’s stake in the yard worth 1,13,28,000 equity shares of Rs.10, both through a public offering in the domestic market. Market sources say that CSL is looking to raise an estimated Rs 1,500 crore from the maiden public offering. The IPO would value Cochin Shipyard at an estimated Rs 5,500 crore. Seasonal Magazine takes an inside look at the strengths of this shipbuilder and its IPO.

Rare Capabilities:

Cochin Shipyard has been building India’s first aircraft carrier INS Vikrant for the Indian Navy. No other shipyard in the public or private sector has ever been commissioned for such a work by India or foreign countries. Only four countries have ever been able to build an aircraft carrier on their own - USA, UK, France, & Russia. India is joining this select club thanks to the expertise of Cochin Shipyard and Indian Navy. The 262 metre long Vikrant has been launched into the waters 3 years back, and is now at phase-II of construction. Countries needing aircraft carriers is on the rise, and growth potential is huge as only 12 countries own such carriers now. 

Market Leadership:

Cochin Shipyard is the only major shipbuilder under Ministry of Shipping. All other major PSU shipbuilders come under Ministry of Defence. In the private sector, there are around 5 to 7 major shipbuilders including new projects that have come up in later years. Cochin Shipyard is India’s largest largest public sector shipyard by dock capacity, and reflecting this market leadership government has decided that CSL should be the first of five state-owned shipbuilding companies to be publicly listed. By business size or revenue, CSL is the second largest shipyard in India, next only to Mazagon Dock which comes under Ministry of Defence.

Wide Portfolio of Products & Services:

Cochin Shipyard’s portfolio of products and services encompasses all the four major operations at a modern ship making yard, which are commercial ship building and defence ship building, and commercial ship repairs and defence or naval ship repairs.CSL can build practically any kind of vessel, including complex vessels for the oil & gas sector, and if the sector again witnesses an increase in demand due to rising crude prices, CSL will stand to gain. The PSU shipbuilder has time and again proved that it can rapidly meet demands for more and more specialized customizations that shipping companies demand these days.

Consistent Profitability:

Cochin Shipyard is the only shipbuilder in the country – both in the public and private sector – that has been consistently profit-making during the past five years. It is a commendable achievement as during this period, international and Indian shipping industry has been severely hit due to the double whammy of global financial crisis and the later rout in oil prices. Cochin Shipyard has maintained its profitability by tweaking its product-mix as well as by tightening of internal controls. It will be heartening for the market to know that even in a bad market for shipping industry this shipbuilder has been able to squeeze out the last drop to get results.

Steady Growth:

Cochin Shipyard’s revenue or top-line has grown at a compounded rate of 9.25% per year from FY2011-12 to FY2015-16, as per draft papers. Its profit has grown at a CAGR of 16.47% in the same period. Cochin Shipyard’s current order book is around Rs. 4500 crore now. Cochin Shipyard is focused on delivering the maximum within deadlines, and by continually refilling the order book. Favourable market trends for CSL include Central Government’s Make-in-India program and the focus on Defence infrastructure. The fastest growing segment for Cochin Shipyard is ship repairs on the defence or naval side.

Professional Management:

Cochin Shipyard Ltd is a Category 1 Miniratna PSU under Ministry of Shipping headed by Minister Nitin Gadkari, and it has has a 170 acres campus at Kochi, Kerala. Cochin Shipyard Ltd is headed by Madhu S Nair as Chairman & Managing Director. A postgraduate naval architect from Japan’s Osaka University, which is incidentally top-ranked for this niche subject, he currently heads a 1800-people strong team of ship designers, engineers, builders, managers, and support staff at Cochin Shipyard Ltd (CSL). Madhu S Nair, CMD, has been a CSL veteran for the past 28 years, having headed its marketing operations in Europe too.

Impressive Expansion Plans:

Part of the IPO proceeds, that is from the fresh issue of new shares, will go for part-funding two major expansion plans of Cochin Shipyard - a larger third dry dock, and a new international ship repair facility (ISRF). The planned larger dry dock will open up segments like LNG vessels, new Suezmax / Aframax vessels, jack-up rigs, submersible repairs etc. It is a dock that will be 310 metre long, and it is a step dock with 75 by 60 metres, able to handle ships that are up to 40% bigger. The ISRF will have its own berthing spaces, six workstations on a ship-lift, and every modern facility, and will position Kochi as a major ship repair hub.

Admirable Labour Relations:

While some trade unions continue to agitate against Cochin Shipyard’s imminent IPO, it needs to mentioned that despite being in traditionally leftist Kerala, CSL has enjoyed excellent labour relations. There has not been a single day of strike during the past thirty years by CSL’s own workers. This is a record, especially in a state like Kerala. Cochin Shipyard appreciates the contribution of its employees and the company has set aside 8.24 lakh shares for its 1800-odd employees in the IPO. As per the regulatory filings, the IPO will also offer a five per cent discount on the final price for the shares offered to employees.

New Exciting Products:

Cochin Shipyard has recently entered the Ferry or passenger ships segment. They have been contracted for making four ferries for the Andaman. Two of them will have passenger capacity of 1200 and two are of 500 capacity. While CSL will do the design side, some strong European companies are also partnering with the shipyard in this contract. Once these vessels come into the market, industry is sure to notice the quality of CSL products. Around 90% of the world ferry market is in Europe, with the rest scattered elsewhere. With this order CSL is opening up the ferry market for India.

Favourable Trends:

Union Shipping Minister Nitin Gadkari has been a strong promoter of coastal and inland transportation. Coastal transportation using ferries is one such area. If such systems come in India, people can travel from, say, Kochi to Mumbai in around 36 hours, enjoying the best of a sea voyage, yet at very reasonable cost. There are these roll-on / roll-off or ROPAX vessels in Europe, where passengers can even drive in their cars or SUVs, use the same for local travel at our destination city, and come back in that ferry the same way. ROPAX vessels are also intended for cargo like transporting new cars etc and this has recently reached Kochi port too. Such trends are favourable for Cochin Shipyard’s future growth.

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