Mazagon Dock Shipbuilders IPO Review

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Mazagon Dock Shipbuilders IPO

7.5

Company Background

8.0/10

Price Band

7.0/10

Financial Health

7.5/10

Industry Situation

8.0/10

IPO Proceeds Usage

7.0/10

Pros

  • Old Brand
  • Under Ministry of Defence
  • Strong Order Book
  • Diversified Business

Cons

  • Huge Govt Influence can be concerning too
  • Cyclical Business

Mazagon Dock Shipbuilders Background

The company, headquartered in Mumbai is a public sector undertaking shipyard, which has been 100% owned by the Government of India.

It was founded in 1934 and operates under the Department of Defence Production, Ministry of Defence. Mazagon Dock Shipbuilders is engaged in construction and repair of warships and submarines for use by the Indian Navy and other vessels for commercial clients.

They mainly operate in two divisions of shipbuilding and submarine and heavy engineering. Their maximum shipbuilding and submarine capacity is of 40,000 DWT  and has built a total of 795 vessels including 25 warships, from advanced destroyers to missile boats and three submarines till now.

They have also manufactured cargo ships, passenger ships, supply vessels, multi-purpose support vessels, water tankers, etc for their Indian and foreign clients as well.

The company’s shipyard is situated strategically on the west coast of India, on the sea route connecting Europe, West Asia and the Pacific Rim. The company has received ISO 9001:2008 certifications for both shipbuilding and submarine and heavy engineering divisions.

Mazagon Dock Shipbuilders IPO is going to be launched very soon in a few days and in this detailed review, we will talk about different aspects related to this IPO before providing you with an opinion on whether to go ahead with your investment or not.

Mazagon Dock Shipbuilders IPO Data Points

Mazagon Dock Shipbuilders IPO will open on (undisclosed) and close for subscription on (undisclosed).

The IPO size will be of 22,410,000 Equity shares, aggregating up to ₹(undisclosed) crores. and the face value of each share will be ₹10. Up to (undisclosed) additional equity shares may be reserved for employees subject to necessary approval by the Government of India.

The price band range has been set at ₹(undisclosed) – ₹(undisclosed) per share. The offer price is (undisclosed) times the face value of the equity shares. The IPO size is expected to be up to ₹(undisclosed).

The market lot size is of (undisclosed) equity shares and the shares will be listed on the National Stock Exchange (NSE).

Pursuant to a resolution passed at the meeting held on March 1, 2018, the offer has been authorised by the Board of Directors and pursuant to a resolution of the shareholders through their consent letter dated February 1, 2018, the offer has been approved by them.

Mazagon Dock Shipbuilders Financial Performance (Restated Standalone)

The total revenues of the company decreased by 12.11% in the financial year ended March 31, 2017, to ₹42,950.53 million from about ₹48,867 million for the financial year ended March 31, 2016, due to a decrease in ship construction.

 

Other reasons included a decrease in other operating revenues which occurred because of lesser procurement of spares and reduction in other income.

Because of this, the profit after tax also decreased by 8.88% during the same period. The return on net worth of the company for the six months ended September 30, 2017, was 8.84% and 23.71% and 19.84% for the fiscal years ended March 31, 2016, and March 31, 2017, respectively.

Mazagon Dock Shipbuilders IPO Objectives

The main objective of this IPO is to carry out the disinvestment of Equity Shares by the selling shareholder (The President of India acting through the Ministry of Defence, Government of India).

Other than the above-mentioned objectives, the company will also achieve the benefits of listing on stock exchanges through this IPO.

Mazagon Dock Shipbuilders IPO Events

Mazagon Dock Shipbuilders filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on March 28, 2018, for the 100% Book Built IPO.

The offer will open on (undisclosed) and close on (undisclosed). The finalisation of basis of allotment is expected to happen by (undisclosed) and the initiation of refunds is expected to start by (undisclosed).

The transfer of shares to demat accounts is expected to start on (undisclosed) and the expected listing date will be (undisclosed).

Mazagon Dock Shipbuilders IPO Recommendation

Now, let us try to examine various strengths and risks related to the company.

According to CRISIL Report, this company is the only company which has built destroyers and conventional submarines for the Indian Navy.

They have also signed a technology transfer agreement with Naval Group, France for Scorpene submarines which shows that they have a capability to manage construction of conventional submarines. They have an edge over their domestic competitors in terms of infrastructure and facilities at their shipyard which is reflected in their ISO 9001:2008 certifications.

They also enjoy a competitive advantage in terms of their location of the shipyard on the west coast of India in Mumbai.

They are able to maintain greater efficiency because of proximity to their customers as well as suppliers, which are also located in Mumbai.

They have a strategy to increase the amount of indigenised components for building their ships and submarines because of the “Make In India” campaign launched by the government of India. Mazagon Dock Shipbuilders has been showing profits in the last three years and has a proven track record along with a strong order book.

The Board is highly experienced in this industry and highly skilled and experienced naval architects, engineers and draftsmen are also an added advantage for the company. They have strategies in place to expand by increasing their geographical reach.

Now, let us analyse some potential risks for the company.

They are dependent on the Ministry of Defence up to a large extent for their orders and recent changes in the policies regarding defence procurement and manufacturing in India may result in lesser orders for the company.

Because of the nature of operations of their major customer, the Indian Navy, certain material documents need to be secret and confidential due to which certain information about them, their products business, etc. has not been mentioned in the Draft Red Herring Prospectus.

Payment of liquidated damages in cases of delay in delivery may affect the financial performance of the company.

Stringent environmental laws and regulations may expose the company to the risk of environmental costs and liabilities, including liabilities associated with past activities.

The revenues of the company are subject to certain milestones and are also subject to termination which exposes them to risk of termination of any such contracts which may affect the financial performance of the company negatively.

There is a possibility of losses due to time and cost overruns, or failures to meet contract specifications due to which the operations of the company may be affected in the future.

The strategic location of their shipyard and the current infrastructure also poses some limitations for further growth and expansion of the company.

Also, there is a risk of any potential loss of, destruction or shutdown of the shipyard which may have severe negative effects on the company’s operations. The company, its group companies and Directors are involved in certain legal proceedings and any adverse ruling in them may pose a risk to the overall profitability of the company.

After analysing the different aspects of the company, it may be said that investors may choose to invest in the Mazagon Dock Shipbuilders IPO as long as they are looking for a long-term investment.

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Mazagon Dock Shipbuilders Management Information

Currently, there are 9 Board of Directors of Mazagon Dock Shipbuilders Limited. Rakesh Anand is the Chairman and Managing Director, Rajiv Lath is the Director (Submarine & Heavy Engineering).

Sanjiv Sharma is the Director (Finance) & Chief Financial Officer, T.V. Thomas is the Director (Corporate Planning and Personnel), Anil K. Saxena is the Director (Shipbuilding), Shridhar L. Bapat, Usha Sankar, Sanjeev Bhasin, Devi Prasad Pande, Kamaiah Bandi and Mailareshwar J. Jeevannavar are the Part – Time Non – Official (Independent) Directors of Mazagon Dock Shipbuilders Limited.

Rakesh Anand, Chairman and Managing Director

He is a graduate in mechanical engineering from Thapar Institute of Engineering and Technology, Punjabi University, Patiala.

He holds a master’s degree of technology in the interdisciplinary programme of materials science from IIT, Bombay and a master’s degree in management studies from the Osmania University. Ha has an experience of over 30 years in the Indian Navy.

Mazagon Dock Shipbuilders IPO Advisors Information

Yes Securities (India) Limited, Axis Capital Limited, Edelweiss Financial Services Limited, IDFC Bank and JM Financial are acting as Book Running Lead Manager to the issue. Alankit Assignments is acting as the Registrar for the Mazagon Dock Shipbuilders IPO.

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