Post on 20-Apr-2018
February 7, 2018
ICICI Securities Ltd | Retail Equity Research
Result Update
Strong performance…
Cochin Shipyard Ltd reported strong Q3FY18 numbers. Shipbuilding
and shiprepair segment contributed 66.3% and 33.7% respectively to
the topline of the company. For the quarter, shipbuilding segment
reported abnormally high EBIT margins of 32.4% (normal margins 8-
15%) whereas the shiprepair segment reported muted EBIT margins of
13.9% (normal margins 25-35%). Higher margin in shipbuilding
segment was due to execution of ‘fixed part’ portion in the IAC.
Revenue increased 5.7% YoY to | 615 crore. We expected revenues of
| 620 crore for the quarter. The company reported EBITDA margins of
22.3% vs. 19.4% in Q3FY17. This was due to 530 bps expansion in
gross margins for the quarter. However, employee expenses increased
from 9.7% of sales in Q3FY17 to 11.1% in Q3FY18. Accordingly,
absolute EBITDA grew 21.6% YoY.
PAT grew 25.9% YoY at | 113.8 crore due to better operational
performance and jump in other income by 36.1% YoY to | 51 crore.
Strong shiprepair performance, new initiatives
CSL has reported strong performance in shiprepair segment as it clocked
revenues of | 526 crore for 9MFY18 vs. | 543 crore in full year FY17. To
augment revenues from this segment, CSL has taken number of steps like
signing MOUs with Mumbai Port Trust, Andaman & Nicobar
administration and Kolkata port trust for management and operation of
their shiprepair facilities. We believe such a move will help CSL to clock
revenues of over | 1000 crore by FY20-21. To leverage on other
upcoming opportunities like inland water transportation and coastal
shipping vessels, CSL has entered formed a JV with Hooghly Dock & Port
Engineers (HDPEL) and planned a capex of | 100 crore at two of its
shipyards at Salkia and Nazirgunge in Howrah, West Bengal.
Healthy balance sheet, strong capacity additions and order book
CSL has a strong balance sheet with debt of | 123 crore and cash of over
| 2500 crore. To capture the upcoming opportunities, CSL has planned a
huge capex of ~| 3000 crore over FY18-21E (| 2768 crore for the new
larger size dry dock and repair facility, | 100 crore for Hooghly Cochin
Shipyard Ltd and | 150 crore for developing docks at Mumbai, Andaman
& Nicobar and Kolkata). CSL also has a healthy order book of | 2,337
crore plus L1 status for ASW vessels (| 5400 crore) and 56 boats (| 380
crore). It is also likely to receive order for phase III of IAC, which is likely
to be ~| 10,270 crore (| 3000 crore as fixed price contract and | 7270
crore as cost-plus contract). This takes the total order backlog to | 18,737
crore (adding shiprepair orders of | 350 crore). We believe these orders
give strong revenue visibility to CSL till FY21. With healthy balance sheet,
significant capacity additions, healthy order pipeline and strong execution
capabilities, we believe CSL will clock revenue, EBITDA and PAT CAGR of
15.3%, 11.1% and 9.6%, respectively, in FY17-20E. We value CSL at 21x
FY20E earnings for existing business (| 655/share) plus 0.2x (| 26/share)
and 0.6x (| 44/share) for its planned capex in shipbuilding and ship repair
segment, respectively, to arrive at SOTP value of | 725/ share. We have
BUY recommendation on the company.
Cochin Shipyard Ltd (COCSHI) | 525
Rating matrix
Rating Matrix
Rating : Buy
Target : | 725
Target Period : 12 - 15 months
Potential Upside : 38%
What’s changed?
Target Unchanged
EPS FY19E Changed from | 26.2 to | 29.7
EPS FY20E Changed from | 29.9 to | 31.2
Rating Unchanged
Quarterly performance
Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%)
Revenue 615.0 581.8 5.7 583.2 5.5
EBITDA 137.2 112.8 21.6 94.4 45.3
EBITDA (%) 22.3 19.4 292 bps 16.2 612 bps
PAT 113.8 90.3 25.9 100.2 13.5
EPS (|) 8.4 8.0 4.9 7.4 13.5
Key financials
| Crore FY17 FY18E FY19E FY20E
Revenue 2,222 2,522 2,869 3,344
EBITDA 379 411 447 520
EBITDA (%) 18.4 17.8 16.9 16.5
Net Profit 322 377 404 424
EPS (|) 23.7 27.7 29.7 31.2
Valuation summary
(x) FY17 FY18E FY19E FY20E
P/E 18.5 18.9 17.6 16.8
Target P/E 25.5 26.1 24.4 23.2
EV / EBITDA 14.1 10.5 9.9 9.2
P/BV 3.7 2.2 2.1 1.9
RoNW (%) 17 11.8 11.7 11.4
RoCE (%) 18.7 14.9 14.4 13.6
Stock data
Average Volumes (shares) 0.34 lakh
Market Capitalization | 7137 Crore
Total Debt (FY18E) | 123 Crore
Cash and Investments (FY18E) | 2938 crore
EV (FY18E) | 4321 Crore
52 week H/L (|) 598 / 435
Equity capital | 135.9 Crore
Face value | 10
MF Holding (%) 10.0
FII Holding (%) 3.5
Promoter Holding (%) 75.0
Price performance
Return (%) 1M 3M 6M 12M
Cochin Shipyard Ltd (4.1) (9.1) - -
Bharat Electronics Ltd (17.7) (18.0) (7.8) 6.8
Reliance Naval and Engineering Ltd(33.6) (28.9) (34.7) (35.1)
ABG Shipyard Ltd (17.6) (22.8) (11.8) (59.6)
Research Analyst
Chirag J Shah
shah.chirag@icicisecurities.com
Sagar K Gandhi
sagar.gandhi@icicisecurities.com
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q3FY18 Q3FY18E Q3FY17 YoY (%) Q2FY18 QoQ (%)
Revenue 615.0 620.3 581.8 5.7 583.2 5.5
Shipbuilding and shiprepair segment contributed 66.3% and 33.7%
respectively.
Other Income 51.0 48.0 37.5 36.1 65.2 -21.7 Strong other income due to interest income on IPO proceeds
Total Revenue 666.0 668.3 619.3 7.6 648.4 2.7
Total Raw Material Costs 365.8 400.1 376.8 -2.9 386.5 -5.3
Employee Expenses 68.4 65.8 56.3 21.4 62.2 10.0
employee expenses increased from 9.7% of sales in Q3FY17 to 11.1% in
Q3FY18 due to seventh pay commission revisions
Other expenses 32.6 39.1 32.2 1.0 37.7 -13.5
Provision for losses & exp. 11.1 -8.8 3.7 198.7 2.5 338.5
Operating Profit (EBITDA) 137.2 124.2 112.8 21.6 94.4 45.3
Higher EBITDA margins due to 530 bps expansion in gross margins for the
quarter
EBITDA margin (%) 22.3 20.0 19.4 292 bps 16.2 612 bps
Interest 3.0 3.3 2.7 13.3 3.2 -4.3
Depreciation 9.1 10.0 9.8 -7.6 9.6 -5.4
Total Tax 62.3 50.1 47.4 31.5 46.6 33.7
PAT 113.8 108.8 90.3 25.9 100.2 13.5
PAT grew 25.9% YoY at | 113.8 crore due to better operational performance
and jump in other income by 36.1% YoY to | 51 crore.
Key Metrics Q3FY18 Q3FY18E Q3FY17 YoY (%) Q2FY18 QoQ (%)
Revenue (Segment-wise)
Shipbuilding 408 422 -3.5
As a % of Sales 66.3% 72.4%
Shiprepair 207 161 28.9
As a % of Sales 33.7% 27.6%
EBIT (Segment-wise)
Shipbuilding 131.9 49.7 165.4
EBIT Margins(%) 32.4% 11.8%
Higher margin in shipbuilding segment was due to execution of ‘fixed part’
portion in the IAC
As a % of EBIT 73.7% 48.4%
Shiprepair 28.7 53.0 -45.8
Lower margins in the shiprepair segment due to the lumpy order booking in
this segment. Revenues are booked only after 75% completion in this segment
EBIT Margins (%) 13.9% 33.0%
As a % of EBIT 16.0% 51.6%
Source: Company, ICICIdirect.com Research
Change in estimates
FY17 FY18E FY19E FY20E
(| Crore) Old New % Change Old New % Change Old New % Change
Revenue 2,222.4 2,414.5 2,522.1 4.5 2,798.8 2,869.0 2.5 3,605.8 3,344.1 -7.3
EBITDA 379.5 386.9 410.8 6.2 433.4 447.4 3.2 558.8 519.7 -7.0
EBITDA Margin (%) 18.4 17.3 17.8 54 bps 16.5 16.9 40 bps 16.1 16.5 40 bps
PAT 322.1 334.3 377.1 12.8 356.8 404.4 13.3 406.7 424.2 4.3
EPS (|) 28.4 24.6 27.7 12.8 26.2 29.7 13.3 29.9 31.2 4.3
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Conference call takeaways Q3FY18
CSL order backlog stands at | 18,737 crore.
Exhibit 1: CSL's order book
Sr.No. Current order book Nos Client Pending execution
Shipbuilding
1 Phase II of the IAC - Vikrant 1 Indian Navy 887
2 500 passenger cum 150 ton cargo vessels 2
A & N
Admin 471
3 1,200 passenger cum 1,000 ton cargo vessels 2
A & N
Admin 760
4 Research Vessel 1 GoI 219
5 IAC Phase III (Fixed price contract) Indian Navy 3000
6 IAC Phase III (Cost plus contract) Indian Navy 7270
7 Small boats 56
Home
Affairs 380
8 ASW Corvettes 8 of 16 Indian Navy 5400
Shiprepair
Shiprepair 350
Total 18737
Source: Company, ICICIdirect.com Research
Order for ASW corvettes was won after strong competitive bidding.
Accordingly, PAT margins for the order are likely to be 5-6%.
However, as per management commentary, CSL will try to squeeze
and improve margins as much as possible in this order. This will be
possible because of the learning curve that CSL will develop during
the production of initial few corvettes. This is likely as similar kind of
eight ASW corvettes are on order.
CSL is planning to augment its shiprepair capacity by partnering with
Mumbai Port Trust, Andaman & Nicobar administration and Kolkata
Port Trust. The memorandum of understanding (MoU) envisages for
management and operation of the existing ship-repair facilities at
Indira Dock for commercial and defence ship repairs.
For Mumbai Port Trust (MPT), CSL intends to spend | 80-100 crore in
the next one year. This is to be utilized for expansion of the ship-
repair capacity within the Indira Dock, and may include the setting up
of a floating dry dock (FDD) and upgrading the existing facility at
Hughes dry dock. CSL expects ~|100 crore of revenue from the MPT
by FY19E.
For the Andaman & Nicobar docks, management intends to spend
|10-15 crore by FY19E. Currently the opportunity is to repair 80
vessels of A & N administration.
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
Revenues to grow at 15.3% CAGR in FY17-20E
We expect revenues to increase from | 2059 crore in FY17 to | 3156 crore
in FY20E at a CAGR of 15.3% in FY17-20E, mainly on the back of
accelerated growth in the shipbuilding segment. Over FY13-17, CSL
registered muted revenue CAGR of 7.3% on the back of growing higher
share of revenues in the ship repair segment. Contribution to revenue
from the ship repair segment increased from 13.8% in FY14 to 26.4% in
FY17. Accordingly, revenues from the ship repair segment grew 17.4%
CAGR in FY13-17 whereas it grew only 4.5% during the same period in
the shipbuilding segment.
However, going ahead, we expect revenues from shipbuilding to grow at
an accelerated rate of 17.9% in FY17-20E. In the ship repair segment, we
expect muted growth of 6.1% in FY17-20E due to current ship repair
capacity running at almost full utilisations. Accordingly, we expect
revenue contribution from the shipbuilding segment to increase from
73.5% in FY17 to 78.6% in FY20.
Exhibit 2: Revenue trend
2,059
2,308
2,653
3,156
-
500
1,000
1,500
2,000
2,500
3,000
3,500
FY17 FY18E FY19E FY20E
| c
rore
Revenues
Source: Company, ICICIdirect.com Research
Exhibit 3: Shipbuilding revenue trend
1410
1643 16241514
1698
2052
2481
0
500
1000
1500
2000
2500
3000
FY14 FY15 FY16 FY17 FY18E FY19E FY20E
| c
rore
Shipbuilding
2.4%
17.9%
Source: Company, ICICIdirect.com, Research
Exhibit 4: Ship repair revenue trend
228196
367
544
610580
650
-100
100
300
500
700
900
FY14 FY15 FY16 FY17 FY18E FY19E FY20E
| c
rore
Shiprepair
33.6%
6.1%
Source: Company, ICICIdirect.com, Research
ICICI Securities Ltd | Retail Equity Research Page 5
Exhibit 5: Revenue segmentation (%)
85.3% 88.4%81.4%
73.5% 73.6% 77.3% 78.6%
13.8% 10.5%18.4%
26.4% 26.4% 21.9% 20.6%
0%
20%
40%
60%
80%
100%
120%
FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Shipbuilding Shiprepair
Source: Company, ICICIdirect.com Research
EBITDA to grow at 11.1% CAGR in FY17-20E; margins to decline
The operating income grew at 13.2% CAGR over FY13-17. This was
despite subdued growth of 7.9% in revenue over the same period. This
was mainly due to accelerated growth of 17.4% in the ship repair
segment. As stated earlier, contribution to revenue from the ship repair
segment increased from 13.8% in FY14 to 26.4% in FY17. Ship repair
business, depending on the vessel mix, can earn EBITDA margins up to
40%. The shipbuilding segment, on the other hand, earns 5-15% EBITDA
margins. Higher growth in the ship repair segment helped CSL post better
margins of 18.4% in FY17 vs. 14.8% in FY13.
Going forward, we expect this trend to reverse primarily due to increasing
contribution of the shipbuilding segment. We expect the shipbuilding
segment to grow at 17.9% CAGR in FY17-20E and contribute 78.6% to the
total topline by FY20E. This is likely to lead to a decline in the operating
margin from 18.4% in FY17 to 16.5% in FY20E. Higher employee
expenses due to implementation of the Seventh Pay Commission are also
likely to put pressure on margins, going forward. We estimate a 16.3%
increase in employee expenses in FY17-20E. However, despite a decline
in EBITDA margins, we expect absolute EBITDA to grow at 11.1% CAGR
in FY17-20E vs. 13.4% in FY13-17. Thus, we expect CSL to report
absolute EBITDA of | 520 crore in FY20E.
Exhibit 6: EBITDA and EBITDA margin trend
2,1
07
2,2
22
2,5
22
2,8
69
3,3
44
355
379
411
447
520
17.8
18.4
17.8
16.9
16.5
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY16 FY17 FY18E FY19E FY20E
| cro
re
15
16
16
17
17
18
18
19
19
%
Revenues EBITDA EBITDA margin (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 6
PAT to grow at 9.6% CAGR over FY17-20E
Net profit grew at 14.9% CAGR in FY13-17. This was higher than revenue
growth during the same period (7.9% CAGR in FY13-17) due to operating
leverage (ship repair business) and accelerated growth in other income of
the company. Other income of the company grew at 17.1% contributing
to higher PAT growth of 14.8% CAGR in FY13-17. Higher interest income
was due to growing cash balance on the books of the company. Cash
balance grew from | 573 crore in FY14 to | 1927 crore in FY17. Post the
receipts of IPO proceeds, cash balance is likely to further grow from |
1927 crore to | 2938 core. However, going forward, we expect this trend
to reverse due to depletion in cash reserves on account of capex
expenditure of | 270 crore, | 450 crore and | 750 crore in FY18E, FY19E
and FY20E, respectively. Accordingly, we expect the cash balance to
decline from | 2938 crore to | 2556 crore in FY20E. CSL’s management
intends to keep cash levels of 40-50% of the topline to meet any
delays/cost overruns in new and existing projects. Thus, in a reducing
cash balance scenario, other income is likely to reduce.
Accordingly, we expect PAT to grow at a CAGR of 9.6% from | 322 crore
in FY17 to | 424 crore in FY20E.
Exhibit 7: Interest income trend
93
114
164
214 216
188
0
50
100
150
200
250
FY15 FY16 FY17 FY18E FY19E FY20E
| c
rore
Interest Income
Source: Company, ICICIdirect.com, Research
Exhibit 8: Cash balance trend
1927
29382826
2556
0
500
1000
1500
2000
2500
3000
3500
FY17 FY18E FY19E FY20E
| c
rore
Cash Balance
Source: Company, ICICIdirect.com, Research
Exhibit 9: PAT and PAT margin trend
273
322
377
404424
12.0
14.515.0
14.1
12.9
-
50
100
150
200
250
300
350
400
450
FY16 FY17 FY18E FY19E FY20E
| c
rore
10
11
12
13
14
15
16
17
18
19
20
%
Net Profit Margins (%)
Source: Company, ICICIdirect.com Research
We expect PAT to grow at a CAGR of 8.1% from | 322
crore in FY17 to | 424 crore in FY20E
ICICI Securities Ltd | Retail Equity Research Page 7
Return ratios to remain stable
In the last few years (FY13-17), the RoE, RoCE have improved from
15.3%, 15.8% in FY13 to 16.5%, 18.7%, respectively, in FY17. This was
due to an improving operating performance due to higher contribution
from the high margin ship repair business of the company. The company
also incurred marginal capex spending of less than | 50 crore per year
over the same period.
However, going forward, we expect return ratios (RoEs & RoCEs) to
moderate to 11.4% and 13.6%, respectively, in FY20E due to declining
operating margins and heavy capex spending of ~| 3000 crore in FY18E-
21E. Post completion of the capex, we expect CSL to deliver its historical
return ratios of 15-20%. We reiterate that over the past 10 years, the
company has delivered average RoEs of 18.5%.
Exhibit 10: Return ratios to improve
16.818.7
14.9 14.4 13.6
15.6 16.511.8 11.7 11.4
39.1
48.152.5
42.3
30.7
-
10
20
30
40
50
60
FY16 FY17 FY18E FY19E FY20E
%
RoCE (%) RoE (%) RoIC (%)
Source: Company, ICICIdirect.com Research
CSL is one of those few public sector companies that have
a consistent history of delivering superior returns on capital
employed. We believe that despite huge capex plans in
FY18E-20E, CSL will report double digit return ratios in
FY18E, FY19E and FY20E, respectively
ICICI Securities Ltd | Retail Equity Research Page 8
Cash flows set to improve; CFO/EBITDA healthy at 1x
The company is expected to generate healthy cash flows with cash flow
from operations (CFO) increasing from | 374 crore in FY17 to | 558 crore
in FY20E. The CFO/EBITDA ratio is likely to be healthy at 1.1x in FY20E.
Exhibit 11: CFO/EBITDA trend
480
374
416
504
558
355379
411
447
520
1.4
1.0 1.0
1.11.1
0
100
200
300
400
500
600
FY16 FY17 FY18E FY19E FY20E
| c
rore
0
0
0
1
1
1
1
1
2
(x)
CFO EBITDA CFO:EBITDA
Source: Company, ICICIdirect.com Research
The free cash flow (FCF) generation is likely to be impacted by capex
expenditure over FY18E-20E. Thus, we expect CSL to report cash flows of
| 146 crore, | 54 crore and negative | 192 crore in FY18E, FY19E and
FY20E, respectively. Net cash as a percentage of net worth is also likely to
reduce from ~100% in FY17 to 69% in FY20E.
Exhibit 12: Strong FCF generation, FCF yield
1094
438
301
54
-192
146
-400
-200
0
200
400
600
800
1000
1200
FY15 FY16 FY17 FY18E FY19E FY20E
| c
rore
-5
0
5
10
15
20
%
FCF FCF Yield
Source: Company, ICICIdirect.com Research
Exhibit 13: Net cash as percentage of net worth (47% in FY20E)
15761746
1951
3204
3455
3719
91
99
82
69
99 92
0
500
1000
1500
2000
2500
3000
3500
4000
FY15 FY16 FY17 FY18E FY19E FY20E
| c
rore
0
20
40
60
80
100
120
%Networth As %age of Networth
Source: Company, ICICIdirect.com Research
Our interaction with the management suggests CSL’s working capital is
likely to remain stable at 45-50 days in FY17-20E. This is mostly on
account of defence orders where the company sometimes receives
advance payments for its orders (15% of the total contract value). On the
commercial side, to mitigate any strain on the balance sheet of the
company for delays/cost overruns, CSL prefers to have a cash balance
which is 40-50% of the contract value.
Going forward, CSL is also likely to pay healthy dividends of ~30% of
earnings in line with the government policy on dividends for profitable
PSUs. Thus, we expect healthy dividends payouts over FY17-20E.
We expect CSL to report healthy CFO/EBITDA of ~1.1x in
FY20E
ICICI Securities Ltd | Retail Equity Research Page 9
Exhibit 14: Dividend payout to be 30%, going forward
24.1
28.4 27.7
7.78.5 8.3 8.9 9.4
29.7 31.232
30 30 30 30
0
5
10
15
20
25
30
35
FY16 FY17 FY18E FY19E FY20E
| p
er s
hare
0
5
10
15
20
25
30
35
%
EPS DPS Dividend Payout
Source: Company, ICICIdirect.com, Research
Exhibit 15: Working capital, best-in-class despite large and lumpy orders
42
33
35
35
35
88
56 60
62
6469
45 5
0
50
50
62
43
45
4749
0
20
40
60
80
100
FY16 FY17 FY18E FY19E FY20E
Days
0
10
20
30
40
50
60
70
NW
C d
ays
Inventory Days Debtor Days
Creditor Days Net Working Capital Days
Source: Company, ICICIdirect.com, Research
ICICI Securities Ltd | Retail Equity Research Page 10
Outlook and valuation
CSL is the prime large shipbuilder of Government of India. The company
enjoys a near monopoly in shipbuilding and ship repair of large vessels. A
case in point is the shipbuilding order of IAC I – Vikrant, which was
awarded to CSL on a nomination basis. Similarly, the company has the
only commercial shipyard to have undertaken repair work of Indian
Navy's aircraft carriers, the INS Viraat and INS Vikramaditya. In any such
large projects where national security coupled with strong experience is
required, CSL is likely to emerge as the frontrunner. Being a government
company, it receives a number of orders on a nomination basis. Of the
domestic order book of ~| 2856 crore, the company has received
substantial orders on a nomination basis. We believe this trend is likely to
continue, going forward, also.
CSL also possesses a wide moat in the form of its infrastructure
capabilities. It currently has two large dry docks, three quays and a steel
stockyard that can hold 60,000 tonnes of steel. It also has India’s largest
hull fabrication shop that can process 2,000 tonnes of steel every month.
It has two gallantry cranes 150 tonnes & 300 tonnes and is in the process
of adding one more of 600 tonnes in its new facility. Strong infrastructure
capabilities coupled diverse competencies in the defence segment (both –
shipbuilding and ship repair) gives the company a significant edge over
any upcoming competition. CSL is one of the few companies among large
Indian public sector enterprises that have delivered consistent business
performance. The company delivered a topline, bottomline CAGR of
11.1%, 18.7%, respectively, in the past 10 years (FY07-17). It has also
clocked average RoEs, RoCEs of 15.5%, 16.5%, respectively, over FY12-
17. This is despite turbulent times in the global shipbuilding industry and
slow pace of decision making in the Indian defence industry.
CSL also has a healthy order book of | 2,337 crore plus L1 status for ASW
vessels (| 5400 crore) and 56 boats (| 380 crore). It is also likely to receive
order for phase III of IAC, which is likely to be ~| 10,270 crore (| 3000
crore as fixed price contract and | 7270 crore as cost-plus contract). This
takes the total order backlog to | 18,737 crore (adding shiprepair orders
of | 350 crore). We believe these orders give strong revenue visibility to
CSL till FY23. With healthy balance sheet, significant capacity additions,
healthy order pipeline and strong execution capabilities, we believe CSL
will clock revenue, EBITDA and PAT CAGR of 15.3%, 11.1% and 9.6%,
respectively, in FY17-20E. We value CSL at 21x FY20E earnings for
existing business (| 655/share) plus 0.2x (| 26/share) and 0.6x (| 44/share)
for its planned capex in shipbuilding and ship repair segment,
respectively, to arrive at SOTP value of | 725/ share. We have BUY
recommendation on the company.
Exhibit 16: SOTP Value of CSL
Sr.No. SOTP Valuation Multiplication factor Value ( | per share)
1 Base business FY20E EPS of | 31.2 21 655
2 For new dry dock 1799 0.2 26
3 For new ISRF 969 0.6 44
725
Source: Company, ICICIdirect.com Research
CSL is the prime large shipbuilder of Government of India.
The company enjoys a near-monopoly in shipbuilding and
ship repair of large vessels. CSL also possesses a wide
moat in the form of its infrastructure capabilities. It has
two large dry docks and India’s largest hull fabrication
shop that can process 2,000 tonnes of steel every month
ICICI Securities Ltd | Retail Equity Research Page 11
Recommendation history vs. consensus
0
20
40
60
80
100
120
0
100
200
300
400
500
600
700
800
Feb-18Nov-17Sep-17
(%
)(|)
Series1 Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research, Initiated coverage on 10th October 2017
Key events
[
Year Event
1969
Cochin Shipyard was chosen for the launch of the first greenfield shipbuilding yard in the country. Yard was designed and constructed under technical
collaboration with M/s Mitsubishi Heavy Industries (MHI), Japan.
1978-81 Shipbuilding operations commenced in 1978 and shiprepair in 1981.
2008 Company receives Miniratna Category I status
2009 Keel laying of first indigenous aircraft carrier for Indian Navy in February 2009
2010 Receives order for building 20 fast patrol vessels for Indian Coast Guard
2015 Obtains license from GTT to build LNG Ships using the containment system, Mark-III Technology in Dec 2015
2017 CSL lists on stock exchanges, receives order for building eight ASW SWC for the Indian Navy via competitive bidding
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date O/S Position Position Change
1 Government of India 30-09-2017 75.00% 101.95M 0
2 Reliance Nippon Life Asset Management Limited 30-09-2017 3.85% 5.24M -1.65M
3 PineBridge Investments Asset Management Company (India) Private Limited 30-09-2017 1.64% 2.24M +2.24M
4 HDFC Asset Management Co., Ltd. 30-09-2017 1.31% 1.78M -0.04M
5 Mirae Asset Global Investments (India) Pvt. Ltd. 31-12-2017 0.83% 1.12M -0.05M
6 BNP Paribas Asset Management Asia Limited 31-10-2017 0.64% 0.87M +0.50M
7 Invesco Asset Management (India) Private Limited 30-11-2017 0.45% 0.61M 0
8 BNP Paribas Asset Management India Pvt. Ltd. 31-12-2017 0.41% 0.56M 0
9 IDFC Asset Management Company Private Limited 30-11-2017 0.30% 0.41M +0.11M
10 Sundaram Asset Management Company Limited 31-12-2017 0.16% 0.22M -0.13M
(in %) Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
Promoter 100.0 100.0 100.0 75.0 75.0
FII 0.0 0.0 0.0 3.1 3.5
DII 0.0 0.0 0.0 10.6 10.9
Others 0.0 0.0 0.0 11.3 10.6
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor name Value Shares Investor name Value Shares
PineBridge Investments Asset Management Company (India) Private Limited+17.80M +2.24M Reliance Nippon Life Asset Management Limited -13.13M -1.65M
BNP Paribas Asset Management Asia Limited +4.45M +0.50M Canara Robeco Asset Management Company Ltd. -3.76M -0.42M
Franklin Templeton Investments (Asia) Ltd. +0.87M +0.11M Sundaram Asset Management Company Limited -1.12M -0.13M
IDFC Asset Management Company Private Limited +0.93M +0.11M Mirae Asset Global Investments (India) Pvt. Ltd. -0.44M -0.05M
FIL Investment Management (Singapore) Ltd. +0.32M +0.04M ICICI Prudential Asset Management Co. Ltd. -0.35M -0.04M
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
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Financial summary
Profit and loss statement | Crore
(| Crore) FY17 FY18E FY19E FY20E
Net Sales 2,062 2,308 2,632 3,131
Operating income - - 21 25
Revenue 2,059 2,308 2,653 3,156
% Growth 3.3 12.1 14.9 19.0
Other income 163.6 214.1 216.2 188.4
Total 2,226 2,534 2,869 3,344
% Growth 5.6 13.9 13.2 16.6
Raw Mtl costs 1,314 1,489 1,734 2,098
Employee Expenses 217 247 276 313
other expenses 135 138 168 194
Total Operating Exp. 1,679 1,897 2,205 2,636
Operating Profit (EBITDA) 379 411 447 520
% Growth 6.9 8.3 8.9 16.2
Interest 11 12 12 18
PBDT 533 613 651 690
Depreciation 39 42 48 57
PBT & Except. items 494 571 604 633
Total Tax 172 194 199 209
PAT before MI 322 377 404 424
Minority Interest - - - -
PAT 322 377 404 424
% Growth 18.1 17.1 7.2 4.9
EPS 28.4 27.7 29.7 31.2
EPS (Post IPO dilution) 23.7 27.7 29.7 31.2
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(| Crore) FY17 FY18E FY19E FY20E
Profit after Tax 322 322 404 424
Depreciation 39 39 48 57
Interest 11 11 12 18
Cash Flow before WC changes 371 371 464 499
Changes in inventory 45 (35) (33) (48)
Changes in debtors 168 (66) (71) (103)
Changes in loans & Advances 52 4 (34) (50)
Changes in other CA (59) (2) (18) (27)
Net Increase in Current Assets 206 (99) (157) (228)
Changes in creditors (119) 61 47 69
Changes in provisions 4 59 46 67
Net Inc in Current Liabilities (204) 144 196 287
Net CF from Operating activities 374 416 504 558
Changes in deferred tax assets 33 - - -
(Purchase)/Sale of FA (73) (270) (450) (750)
Net CF from Inv.activities (56) (270) (450) (750)
Dividend and Dividend Tax (118) (136) (146) (153)
Net CF from Financing Activities (128) 866 (166) (78)
Net Cash flow 189 1,011 (112) (271)
Opening Cash/Cash Equivalent 1,737 1,927 2,938 2,826
Closing Cash/ Cash Equivalent 1,927 2,938 2,826 2,556
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(| Crore) FY17 FY18E FY19E FY20E
Equity Capital 113.3 135.9 135.9 135.9
Reserve and Surplus 1,837 3,068 3,319 3,582
Total Shareholders funds 1,951 3,204 3,455 3,719
Minority Interest - - - -
Total Debt 123 123 123 223
Total Liabilities 2,076 3,330 3,580 3,944
Gross Block 700 756 981 1,511
Acc: Depreciation 328 369 417 474
Net Block 372 387 564 1,037
Capital WIP 56 270 495 715
Total Fixed Assets 429 657 1,059 1,752
Non Current Assets 53 53 53 53
Inventory 186 221 254 303
Debtors 314 379 451 553
Loans and Advances 234 231 265 316
Other Current Assets 120 122 141 167
Cash 1,927 2,938 2,826 2,556
Total Current Assets 2,781 3,892 3,937 3,894
Current Liabilities 255 316 363 432
Provisions 247 306 352 419
Net Current Assets 1,595 2,562 2,410 2,081
Total Assets 2,076 3,330 3,580 3,944
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY17 FY18E FY19E FY20E
Per Share Data
EPS 23.7 27.7 29.7 31.2
Cash per Share 170.1 216.1 207.9 188.0
BV 143.5 235.7 254.1 273.6
Dividend per share 8.5 8.3 8.9 9.4
Dividend payout ratio 0.3 0.3 0.3 0.3
Operating Ratios
EBITDA Margin 18.4 17.8 16.9 16.5
PAT Margin 14.5 15.0 14.1 12.7
Return Ratios
RoE 16.5 11.8 11.7 11.4
RoCE 18.7 14.9 14.4 13.6
RoIC 48.1 52.5 42.3 30.7
Valuation Ratios
EV / EBITDA 14.1 10.5 9.9 9.2
P/E 22.2 18.9 17.6 16.8
EV / Net Sales 2.6 1.9 1.7 1.5
Sales / Equity 1.1 0.7 0.8 0.8
Market Cap / Sales 3.5 3.1 2.7 2.3
P/BV 3.7 2.2 2.1 1.9
Turnover Ratios
Asset Turnover Ratio 2.9 3.1 2.7 2.1
Debtors Turnover Ratio 5.2 6.7 6.4 6.3
Creditors Turnover Ratio 6.5 8.1 7.8 7.9
Solvency Ratios
Debt / Equity 0.1 0.0 0.0 0.1
Current Ratio 1.7 1.5 1.5 1.5
Quick Ratio 1.3 1.1 1.2 1.2
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 13
RATING RATIONALE
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ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
ICICI Securities Ltd | Retail Equity Research Page 14
Disclaimer
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issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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