Monday 17 March 2008

Multibaggers - Bharati Shipyard

Bharati Shipyard

At the CMP of Rs 555, BSL is trading at 13x FY08E, 10x FY09E earnings and EV/EBIDTA of 8.8x FY08E and 6.4x FY09E. Given the strong order book coupled with the expansion of Mangalore Shipyard, the stock is an attractive play at these levels.

Bharati Shipyard Ltd (BSL) is a leading ship builder in India with a capability of constructing vessels like Containers and Cargo vessels; Anchor Handling Tugs cum Supply vessels, Multipurpose Support Vessels and recently the company has ventured into rig manufacturing at its Dabhol facility. The company has a multilocational presence at Ghodbunder, Ratnagiri, Goa, Kolkatta and Mangalore. Given the strong expansion plans at new/existing yards, multilocational presence and strong expertise in building complex ships, BSL is well poised grab the opportunities in the growing shipbuilding sector.

Investment Rationale Strong order book to enhance topline growth:

The current order book of the company is Rs 4615 crore to be executable by 2010. The order book to sales ratio stands at 11x FY07 revenues giving a clear visibility of revenues in the years to come. 67% of the order book of BSL comprises of exports and the balance 33% is domestic. More than 70% of the orders are for offshore support vessels, multipurpose vessels, platform supply vessels etc. BSL is expected to grow at a CAGR of 57% in revenues and 58% in profits from FY08-10E.

New facility at Mangalore to account for more operating leverage:

BSL’s Mangalore yard will have a capacity to build vessels up to 60,000 DWT. The yard will focus more on specialized ships like tankers, bulk carriers, container ships, chemical carriers, product carriers etc. The machinery from the acquired Swan Hunter Shipyard would be transferred to Mangalore. The Mangalore yard is expected to commence shipbuilding operations by Sep 2008. With the initial focus on building rigs and dry bulk carriers, BSL can achieve faster capacity utilization and enhance the profitability in the upward shipbuilding boom.

Sustained Margins:

The company has margins of approximately 27 to 30% on a yearly basis. Going forward we expect BSL to sustain the margins. This is due to the company's policy of covering raw material purchases on a back to back basis (so as to hedge against any volatility in the prices of raw materials).

Valuations & Financials:

At the CMP of Rs 562.70, BSL is trading at around 13x FY08E, 10x FY09E earnings and EV/EBIDTA of 8.8x FY08E and 6.4x FY09E. Given the strong order book coupled with the expansion of Mangalore Shipyard, the stock is an attractive play at these levels. We recommend a ‘Strong Buy’ recommendation on the stock with a price target of Rs 940 based on our DCF methodology. At the target price, the stock is trading at 12x FY10E earnings.

Particulars FY06 FY07 FY08E FY09E FY10E
Net Sales 293.3 421.8 680.2 1108.8 1612.07
% chg 52.26% 44% 61% 63% 45%
EBITDA 89.4 129.9 187.2 300.2 421.71
% chg 93.65% 45% 44% 60% 40%
Net Profit 51.1 72.7 108.8 185.1 250.66
% chg 86.62% 42% 50% 70% 35%
EPS 22.7 32.3 41.2 57.8 78.3
EBITDA Margin (%) 30.50% 30.8% 27.5% 27.1% 26.2%
NPM (%) 17.4 17.2 16 16.7 15.5
P/E (x) 25.5 17.9 14.1 10 7.4

(Rs crore, E-Estimates)

Relative Valuation:

Particulars ABG Shipyard Bharti Shipyard
Price 604.2 555.05
P/E (x) 28.11 17.84
P/CEPS (x) 26.75 16.7
Price/BV (x) 6.1 5.26
Mcap/Sales (x) 3.85 3.19
EV/Sales (x) 3.42 3.38
EV/EBIDTA (x) 11.98 10.45

(Note: All fig. are on TTM basis)

Disclaimer: As per SEBI requirements it is stated that, Kisan Ratilal Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation.