Bharati Shipyard Ltd
INVESTMENT RATIONALE
Robust growth in top-line growth:
Bharati Shipyard (BSL) reported strong revenue growth of 48.0% y-o-y and 3.9%
q-o-q to Rs 316.3 crore. The company registered a subsidy income of Rs 16.8 crore, a decline of 32.4% y-o-y and 22.1% q-o-q. We remain concerned over the
company’s inability to scale up its order book, which has been stagnant for the past three quarters and stands at Rs 5065.5 crore. The unexecuted portion of the order book is Rs 2794.3 crore, which provides revenue visibility for the next 7-8 quarters.
Operating performance deteriorates:
For Q2FY10, the company’s EBITDA increased 20.2% compared to the
corresponding quarter last year and declined by 5.9% sequentially to Rs 76.5 crore. This was mainly on account of lower subsidy income and increase in the cost of raw materials (up 49.6% y-o-y) & manufacturing and other expenditure (up 65.7% y-oy).
Consequently, operating margin declined by 557 bps y-o-y to 24.4%. Going
forward we expect operating margin to improve as the company is expected to
book higher subsidy income in H2FY10.
Operating performance deteriorates:
For Q2FY10, the company’s EBITDA increased 20.2% compared to the
corresponding quarter last year and declined by 5.9% sequentially to Rs 76.5 crore. This was mainly on account of lower subsidy income and increase in the cost of raw materials (up 49.6% y-o-y) & manufacturing and other expenditure (up 65.7% y-oy).
Consequently, operating margin declined by 557 bps y-o-y to 24.4%. Going
forward we expect operating margin to improve as the company is expected to
book higher subsidy income in H2FY10.
Key Developments
• BSL has invested Rs 322 crores to acquire 23% in Great Offshore and is
awaiting the approval from SEBI for the open offer.
• The open offer price for acquiring further 20% stake in Great offshore now
stands revised at Rs 560.
• The outflow on account of the open offer would be to the tune of Rs 440
crore.
• The company is expanding its business by incurring capex on two new
yards in Dhabhol & Mangalore.
• The Dabhol project is likely to be completed by December 2010 and Mangalore Phase 1, a year later. Rs6.25bn has already been invested in the yards till date and another Rs3.25bn is to be invested.
Valuations
At current price of Rs 160 the stock is trading at P/E of 2.9 x of FY10E EPS of
Rs.55.6 and it is trading at TTM EV/EBITDA of 3.1x. We recommend a “BUY” on the stock with a 12 month target price of Rs.191.
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