Shipbuilding: Cochin Shipyard Shines in a Crisis Stricken Industry | CORPORATE ETHOS

Shipbuilding: Cochin Shipyard Shines in a Crisis Stricken Industry

By: | February 6, 2018
Cochin Shipyard

India’s shipbuilding industry which had a glorious past dating back to the ancient Indus Valley Civilisation and also finding mention in the Vedas and Arthasasthra is now struggling to make its presence felt globally with some of the private players debt ridden and facing insolvency proceedings.

India is not a major player in global ship building industry now with only one percent share in a market dominated by Singapore, China and Middle Eastern countries. India Government has unveiled a new Shipbuilding policy that aims to double the size of the industry to Rs 20,000 cr by 2022. India is also home to world’s largest ship breaking yard at Alang in Gujarat. India aims to attain a market share of 5% in ship building and repair.

sreekumar-photo

The policy also aims at granting financial assistance to shipbuilders-both state-owned and private with a corpus of Rs 4000 cr to be implemented in 10 years. Infrastructure status has been granted to ship manufacturing and repair industry.

#Cochin Shipyard Ltd (BSE: 540678, NSE: COCHINSHIP) Category: Mid Cap

Cochin Shipyard is a public sector enterprise established in 1972 and has emerged as a forerunner in the Indian ship building and ship repair industry. It can build ships upto 1,10,000 DWT and repair ships upto 1,25,000 DWT. It has established tie ups with select specialist firms from near-east, far-east, south-east, Europe and USA for technology transfer and material packages for ship building, ship repair platforms, rigs and upgradation of yard facilities.

For the December quarter, the company posted a 41.52% growth in net profit at Rs 113.76 cr while sales rose 5.99% to Rs 615.04 cr. Cochin Shipyard and United Shipbuilding Corporation (USC) of Russia had signed a memorandum of understanding (MoU) to collaborate and engage in design, development and execution of high-end, state-of-the-art vessels for inland and coastal waterways.

It is trading at a PE of 20 indicating moderate valuation by market.  On a returns perspective, returns for the industry have been negative on monthly, quarterly and half yearly basis. Financial ratios present a mixed picture with return on equity of 15.37% and net profit margin of 15.15% while cash flow and liquidity ratios are below industry average.

On technical charts, RSI of 30.89 is bearish, ADX of 23.82 indicates range bound trade, MACD has witnessed a bearish crossover indicative of selling.

Target: Nil

#ABG Shipyard Ltd (BSE: 532682, NSE: ABGSHIP)  Category: Small Cap
ABG Shipyard, a private sector player established in 1985 is now facing insolvency proceedings based on a complaint of criminal conspiracy filed by Standard Chartered Bank. ABG has a total outstanding debt of 16,400 cr to 22 lenders and the company is among the 12 firms identified by the central bank and referred to the National Company Law Tribunal (NCLT) bankruptcy proceedings under the Insolvency and Bankruptcy Code. There was news of take-over of the debt-laden group by Mahindra & Mahindra, Shapoorji Pallonji Group and Libery House of the UK. Meanwhile, the company has informed the exchanges that the Corporate Insolvency Resolution Process (CIRP) has been extended for three months.

From a returns perspective, it would be highly risky to place a bet on ABG Shipyard with negative financial ratios and balance sheet in the red.

#Bharati Defence and Infrastructure Ltd (BSE:532609, NSE: BHARATIDIL) Category: Small Cap
Bharati Defence and Infrastructure Ltd, a private sector ship manufacturing company set up in 1976 also had to undergo a corporate restructuring package due to tardy cash flows and lack of orders. The company is also facing insolvency proceedings before NCLT but the company has informed that the CIRP process has been extended for three months from December 6, 2017.

The scrip is trading 4.43% higher at 6.13 in BSE and a declining trend was seen in the past month after hitting a high of 7.64.

Target: Nil

#Reliance Naval and Engineering Ltd (BSE: 533107, NSE: RNAVAL) Category: Mid Cap

Reliance Naval and Engineering Ltd was established in 1997 and is the first in the private sector in India to obtain the license and contract to build warships It has a large ship building/repair infrastructure and one of the largest dry dock in the world. . In July last, the company was in the news as it launched two Naval Offshore Patrol Vessels at their shipyard in Pipavav, Gujarat. The two are part of the five ships under P-21 project being constructed for the Indian Navy by RDEL. The five ships are fitted with 20,000 KW diesel engine driven propulsion systems and can deliver speeds upto 25 knots. All ship operations are controlled by an intelligent Integrated Platform Management System which has interfaces for all operational activities on-board the ship.

In December quarter, net loss fell to Rs 166.31 cr while sales fell 55.36% to s 53.99 cr. Financial ratios such as return on equity, assets, net profit margin, liquidity and cash flow ratios are all in the negative. On technical charts, RSI of 26.06 is bearish and in oversold territory, ADX of 32 indicates range bound trading and MACD has witnessed a bearish crossover signaling a sell.
Target: Nil

Summary

India’s ship building industry has a glorious past and dates back to the ancient Indus Valley Civilisation. The Vedas and Arthasasthra also mentions the development of ship building that was important for the growth of international maritime trade. The industry was focused on coastal territories like Mumbai, Kochi, Tuticorin, Cuddalore and Mandvi. Following the invasion of colonial rulers, India’s ship building suffered following the invasion of colonial powers.

In the post Independence era, Vishakapatnam, Kolkata, Kochi and Mumbai have emerged as the leading ship building centers.
India Government has approved a ship building policy and various measures are being undertaken to support the cash strapped, debt ridden industry but it may take some more time for them to consolidate and perhaps with a few mergers or acquisitions down the line.

From an investment perspective, except for Cochin Shipyard, there is hardly any company worth considering at this point of time. The ship repairing industry with a turnover of Rs 3000 to 5000 cr has potential for higher growth. Cochin Shipyard had earned Rs 585 cr in this segment.