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The Bharti wave is a booster
The issue is being made at the top of shipping upcycle and its capacity utilisation. Bulging orders books and a gestation till FY 2008 await investors.
ABG Shipyard, which is a part of the ABG Group, is the largest private sector shipyard in India. It builds marine ships, including bulk carriers, deck barges, interceptor boats, anchor handling supply ships, driving support ships, tugs and offshore vessels.
ABG Shipyard has built over 88 ships since its inception in 1990, and currently has an order book position for 27 ships under construction. The shipyard is located at Magdala near Surat on the banks of the river Tapi and is spread across 35 acres. Currently, it can manufacture ships of a maximum length of 155 metres and a maximum weight of 20000 DWT.
The company is coming out with its initial public offering (IPO) on 18 November 2005 (which will close on 24 November 2005) of 85 lakh shares in the price band of Rs 155-Rs 185. The net proceeds from the issue, after meeting issue expenses, will be used to finance the setting up of a new shipyard at Dahej, and to meet working capital requirements. The new shipyard facility at Dahej will be 150 kms away from the current yard. The total capital expenditure is estimated at Rs 450 crore (excluding the issue expenses) out of which Rs 400 crore will be for setting up a new shipyard (including margin money) and Rs 50 crore will be for incremental working capital margin for the existing business. ABG Shipyard is planning to finance the capital expenditure through loan funds from IL & FS (Rs 100 crore) and ICICI Bank (Rs 135 crore), equity placement with financial investors, which includes the Merilion India Fund (Rs 100 crore) and rest through the IPO.
The new facility will consist of two dry docks measuring 400 metres in length, 45 metres breadth and 10 metres in depth. The two dry docks will be able to accommodate bulk carriers up to the weight of 120000 DWT. Two major process sheds of 70 meters x 200 meters are also being constructed in front of each dry dock and a common facility shed of 60 metres x 200 meters is also being set up.
ABG has entered into an equipment sale agreement with Irving Shipbuilding, Canada to acquire shipbuilding machinery / equipments. The management of the company estimates that the equipment / machinery acquired from Irving Shipbuilding Inc will have a remaining life span of a minimum 20 years and the buy out of the Irving Shipbuilding has resulted in a significant cost savings for the company.
Over the last 5 years, the promoters other listed venture, ABG Heavy Industries, has been recording EPS in the range of Rs 8 to Rs 10. The 52 W H / L for this company was Rs. 280 / Rs. 49.
Cut to Bharti Shipyard, the only listed player having similar business. This company offered its shares on a plattter at Rs 66, a multiple of 6 times. Within just a year, the shares are quoting at Rs. 325, commanding a PE of 25.5 x FY05 earnings of Rs 11.80.
ABG Shipyards IPO at a price band of Rs 155-Rs 185 gives a PE of 15.7 to 18.7x FY05 earnings of Rs 9.9 on post issue equity of Rs 50.92 crore. So dont expect a spectacular gain as in the case of Bharti, but certainly, the wind is still blowing northwards. Had one been lucky enough to have known the promoters closely, one could have bought in the last three months at only Rs 113!