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Transcript of Shipbuilding Sector ICICI Dec10
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Please refer to important disclosures at the end of this report
Shipbuilding
Cruising to recoveryReason for report: Initiating coverage
Equity ResearchDecember 6, 2010
BSE Sensex: 19967
ABG Shipyard BUY
Pipavav Shipyard SELL
Sanket [email protected] 22 6637 7159
Indian shipyards may be in for a revival as the offshore segment, which is their
core strength, is seeing significant growth led by key demand triggers. Globally,
after turbulence in 09, shipyards have scripted an exciting recovery in 10 when
new orders are touching ~60mnGT and fundamentals have improved dramatically.
However, this recovery is fragile as merchant shipbuilding is still caught in
undercurrents, but poses little risk to Indian shipyards as most of them are
offshore centric. With good historical record in offshore supply vehicles (OSVs),
increased ability to make sophisticated ships, lower labour costs and robust
clientele, Indian shipyards are well poised to exploit the growth opportunity. We
initiate coverage on ABG Shipyard which has a strong offshore focus with
BUY and Pipavav with stronger focus on merchant shipbuilding with SELL.
Offshore On the up led by 6x rise in new orders over 10-14E. Globally,
favourable demand drivers rise in oil prices, pick-up in demand from the US &
Europe, rising upstream E&P expenditures and age profile of the fleet are
manifesting for the offshore segment, which is the core strength of most Indian
shipyards. The shipyards may also witness some immediate triggers such as: i)
orders from Shipping Corporation of India (SCI), ii) continued subsidy, iii) new
defence contracts and iv) rig & tanker orders. Hence, pent-up demand, especially in
offshore, is set to translate into new orders.
Merchant Amidst undercurrents, but Indian shipyards may steer clear.
Shipping capacity is set to grow faster than trade, thus decreasing utilisation, which
will impact freight rate. Cancellations may increase, especially in dry bulk, whereinshipbuilding is faced with Hobsons choice slippages/cancellations mean revenue
loss and if that does not happen, new orders will be delayed. We do not expect this
imbalance to clear till 13, when the first genuine stable orderbook cycle will start. But
Indian shipyards may steer clear on: i) low exposure to large dry bulk ships, ii) strong
clientele and iii) focus on defence & offshore.
Stock picking to be the key. Given that the improving scenario in the offshore
industry is counterpoised against emerging concerns in merchant shipbuilding, stock
picking is the key. In our view, ABG Shipyard, led by its offshore track record, strong
clientele in the dry bulk segment and high revenue visibility till FY14, is a safer bet.
While Pipavav has excellent execution capabilities and its increasing focus on the
defence sector is a big positive, nevertheless it is significantly dependent on revival
in merchant shipbuilding. With the emergence of Pipavav, we believe investors now
have a choice to take exposure to high-risk merchant shipbuilding or to play on
offshore dynamics.
ABG & Pipavav Initiate with BUY & SELL respectively. Our FCFE target price
values: i) ABG at ~Rs579/share (~Rs120/share for subsidy payments, CoE 14%,
terminal year FY22 and terminal growth 4%); we initiate with BUY and ii) Pipavav at
~Rs64/share (14% cost of equity, terminal year FY22 and terminal growth 4%); we
initiate with SELL.
INDIA
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TABLE OF CONTENT
Investment argument.......................................................................................................3Indian shipyards more offshore centric .......................................................................3wherein favourable demand drivers are manifesting ..................................................3Pent-up demand to boost offshore orderbooks...........................................................4even as merchant shipbuilding takes time to cast anchor...........................................4Indian shipyards may see immediate triggers ................................................................5Stock picking to be the key .............................................................................................6
Global shipyard Calm waters ahead?.........................................................................7After turbulence, some stability sighted.......................................................................7as industry fundamentals have perked up in 10 .....................................................7but merchant shipbuilding still caught in undercurrents ..............................................9Offshore Demand drivers exist ..................................................................................13
Key differentiators Indian shipyards & global peers ..............................................19Extension of subsidy will provide strong boost .............................................................19Government participation still high in the sector ...........................................................20Indian shipyards, recent entrants in building merchant ships.......................................22Increased dependence on offshore will continue..........................................................22Indian shipyards strength Customisation of ships.....................................................22
Index of Tables and Charts...........................................................................................24
COMPANIES
ABG Shipyard ................................................................................................................ 25
Pipavav Shipyard ........................................................................................................... 41
Note: Prices and Sensex as on December 3, 2010
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Chart 1: Increasing oil price and E&P expenditure
(60)
(40)
(20)
0
20
40
60
80
100
120
2007 2008 2009 2010E
(%)
BP Royal Dutch/Shell
Exxon Mobil Conoco Philps
0
20
40
60
80
100
120
140
160
(US$/bbl)
Oil Prices(RHS)
Source: Bloomberg, Company data, I-Sec Research
Pent-up demand to boost offshore orderbooks
Backed by exciting industry dynamics and significant replacement demand, we believe
it is only a matter of time before new orders for OSVs will rise globally. The only trigger
which is still to play out is day rates for OSVs and rigs, which have started improving
with increase in utilisation led by spike in oil demand.
Table 2: Growth drivers take off
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018EGrowth in oil demand (%) 2 3 3 2 2 2 2 2New ships required 143 218 225 155 158 161 164 167Scrapping 308 308 308 308 308 308 308 308Increase in demand 451 526 533 463 466 469 472 475Deliveries 310 178 411 502 600 600 600 475Overall shortfall in system 166 514 636 597 462 331 203 203Day rates for offshore Good Great Great Great Good Good Good Good
All units in nos: Source: Industry, I-Sec Research
even as merchant shipbuilding takes time to cast anchor
Merchant ship building will take time to recover from the excesses in 07-08. This is
especially true for dry bulk, wherein current orderbooks are expected to be >45% of
the fleet. In India, shipyards (except Pipavav) have focused mostly on offshore
shipbuilding. As per our base case, which assumes ~5% trade growth in 11E (dry bulk
trade growth likely to be ~12% in 10E), new orders will start only in FY14. In fact, in
11E-13E, we expect only ~30mndwt of orders to be placed. However, this will be
followed by a sudden spurt of orders in 14-15 in our view, which will normalise
(capacity utilisation ~89%) post 16.
Upstream E&P
expenditures have
increased ~27-34%
for major companies.
They will continue to
increase in the longterm as more and
more oil will come
from fields that are
yet to be developed
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Table 3: How will the dry bulk cycle play out?
2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E
General economic situation Boom Volatile Growth?Dry bulk trade (bn te) 2.8 3.0 3.1 3.0 3.4 3.6 3.7 3.9 4.1 4.3 4.5Converted into shipdemand (mn dwt) 322 351 369 368 406 426 447 470 493 518 544Increase in demand 29 18 -1 38 20 21 22 23 25 26
Actual available
Fleet (mn dwt) 363 386 411 438 486 522 525 529 550 582 611Net increase in fleet size 22 26 27 48 36 3 4 21 32 29
Capacity utilisation 89 91 90 84 84 82 85 89 90 89 89Baltic Dry Index Good Great Great Low Low Low Decent Good Great Good GoodNew order contracting 50 148 105 30 70 30 80 62 41
Source: Industry, I-Sec Research
Our bull case assumes trade growth to continue at ~10%, normalising to ~5% post
16E. Based on bull-case assumptions, 11-13 will see a spurt in orders, to be
delivered in 13-16 before normalising in 17.
Chart 2: New orders Bull versus base case Table 4: Assumptions
0
10
20
30
40
50
60
70
80
90
2011E 2012E 2013E 2014E 2015E 2016E 2017E
(mndwt)
Base Case Bull Case
Base case Bull case
Growth in dry bulk trade (%) 5 10-5Planned delivery from current orderbook(mn dwt) 363 363Cancellations from existing orderbook(mn dwt) 165 116
New orders 11-13 30 140
Ship capacity utilisation (%) 89 89
Source: Industry, Bloomberg, I-Sec Research Source: I-Sec Research
Indian shipyards may see immediate triggers
Long-term growth prospects apart, Indian shipyards may see immediate triggers such
as new orders from SCI, stake purchase by SCI and revival of the subsidy scheme.
SCIs ~Rs135bn boost will give concrete revenue visibility
SCI (with ~79 ships & 5.1mndwt capacity) is planning to invest ~Rs135bn to acquire
>60 ships in the next few years. While it has already placed orders for ~29 vessels, it
is yet to place for the rest. In the past, SCI has not placed significant orders with Indian
private shipyards, and thus we have not considered this in our valuations.
However, the Government has recently come out with a notification, which excludes
the clause of past experience for Indian private shipyards while bidding for Indian
contracts. This indicates the Governments intent to attract higher private participation
in SCIs shipbuilding orders. And if Indian shipyards win even 10% of the contract, it
will provide concrete revenue visibility to the sector and give it a boost.
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Chart 3: Percentage of SCI ships older than 20 years
0
20
40
60
80
100
120
Tankers Bulkers Offshore
(%)
Source: SCI
SCI stake purchase plans will provide a benchmark
SCI also plans to buy a minority stake in an Indian shipyard, which could providebenchmark to valuations.
Revival of the subsidy scheme
The Government has extended 30% subsidy for export orders till August 07. The
scheme may be extended in one form or the other for orders beyond 07. This will give
a major boost to the sector, even if the actual payments are erratic and non-timely.
Given the lack of clarity, we have not factored in continued subsidy in our estimates.
Stock picking to be the key
Given that the improving scenario in the offshore industry is counterpoised againstemerging concerns in merchant shipbuilding, we believe stock picking is the key. We
initiate coverage on ABG Shipyard with BUY as we prefer: i) its strong background in
offshore, ii) sufficient revenue visibility till FY14 and iii) strong clientele that can
withstand even the pressures of merchant shipping. We initiate coverage on Piavav
Shipyard with SELL owing to: i) low revenue visibility, ii) high dependence on
merchant ship building and iii) less experience.
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Global shipyard Calm waters ahead?
After turbulence, some stability sighted
Undoubtedly, the global shipyard industry has been treading water since 09.
Excesses in 04-08 have been haunting the industry in the form of
slippages/cancellations (~40% in dry bulk) and high orderbooks (+25% for tankers and
~46% for dry bulk).
Global trade, however, has recovered smartly. WTO estimates value growth in 10 to
be ~13% versus decline in 09. Freight indexes have recovered from their lows in 09
Shipyards have started getting new orders, although not as much as 08 levels, but
better than 09 levels and more importantly, ahead of expectations. Credit is easily
available to shipping companies and orders for new ships at cheap rates have spiked.
Chart 4: Macro indicators for merchant shippinghave improved percentage change
Chart 5: Some companies have raised ~US$3bn tofund asset acquisitions
(80) (30) 20 70
Container Ships
VLCC
Capesize
Baltic Dry
Tanker Rates
Sea Born Trade
GDP
(%)
2009 vs 2008 2010 vs 2009
0
100
200
300
400
500
600
700
800
900
India
Taiwan
Malaysia
Thailand
Ja
pan
Middle
E
aat
(US$mn)
Source: Industry, Bloomberg, I-Sec Research Source: Industry, I-Sec Research
as industry fundamentals have perked up in 10
If we do not look at 08 and 09, standalone 10 has been a good year for the industry,
with key growth drivers manifesting well. In fact, it does not appear that 09 was
arguably the worst period for the industry.
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Chart 6: GDP growth likely to be +4%... Chart 7: while sea trade could touch ~6%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2010E
(%)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2010E
(%)
Source: Industry, Bloomberg, I-Sec Research, IMF Source: I-Sec Research
Chart 8: Baltic Dry sluggish, but similar to 03
levels
Chart 9: and only tanker rates are sluggish
0
1000
2000
3000
4000
5000
6000
7000
8000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2010E
0
5
10
15
20
25
30
35
40
45
50
1999
2000
2001
2002
2003
2004
2005
2006
2007
2010E
('000US$/day)
Source: Industry, Bloomberg, I-Sec Research Source: Industry, Bloomberg, I-Sec Research
Chart 10: Oil prices and demand high Chart 11: New orders could easily cross ~60mnGT
70
72
74
76
78
80
82
84
86
88
1999
2000
2001
2002
2003
2004
2005
2006
2007
2010E
(mn
bbd)
0
10
20
30
40
50
60
70
80
90
(US$/bbl)
Oil Demand Oil Prices (RHS)
0
20
40
60
80100
120
140
160
180
200
1999
2000
2001
2002
2003
2004
2005
2006
2007
2010E
(mn
GT)
Source: Industry, Bloomberg, British Petroleum, I-Sec Research Source: Industry, I-Sec Research
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but merchant shipbuilding still caught in undercurrents
The current scenario in merchant shipbuilding justifies existing concerns orderbook
growth for Indian shipyards is unlikely to come from merchant shipping. In fact, we
believe merchant shipping is set to witness further lows before it perks up.
Demand not a concern, supply isWe do not believe that demand is a concern oil trade, although impacted by low
demand from the US and Europe, is increasing gradually, while dry bulk trade has
rebounded, growing ~8-12% YoY versus (3)% last year. Thus, demand for shipping
exists. Our concern is that shipping capacity will increase at a faster pace. The global
trade boom and GDP growth through 03-08, along with International Maritime
Organisation regulations and replacement demand, led to a huge spike in orderbook
of shipyards globally in 04-08.
Chart 12: Dry bulk trade has rebounded Chart 13: Oil trade improving gradually withimproving demand from Europe and US
-4%
-2%
0%
2%
4%
6%
8%
10%
2006 2007 2008 2009 2010E
10
12
14
16
18
20
22
2006 2007 2008 2009 2010E
(mnbbd)
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%US Europe Oil Trade (RHS)
Source: UNCTAD, BP, Industry, I-Sec Research Source: UNCTAD, BP, Industry, I-Sec Research
Chart 14: Led by GDP & world trade growth, new order CAGR at 25% in 1999-07
0
20
40
60
80
100
120
140
160
180
200
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010E
(m
nGT)
-4
0
4
8
12
16
(%
YoY)
New Orders (LHS) World GDP Sea Trade
~25% CAGR
Source: Industry, I-Sec Research
Consistent growth in
sea trade and GDP,
IMO regulations and
age profile led to new
orders growing at ~25%CAGR in 1999-07
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As this orderbook will be delivered in the next 2-3 years, shipping capacity will grow
faster than trade, thus decreasing capacity utilisation even from the current levels,
which may impact freight rates, thus impacting shipping companies even more. This
entire cycle will delay the inflow of new orders, hurting shipbuilding.
Chart 15: Since, world trade, deliveries and freightrates correlated
Chart 16: as the deliveries rise, current ratesmay come under pressure
Economy
Trade
Freight Order Backlog
DeliveryFleet
Scrap
Demand for shipping spaceSupply of shipping
space
Economy
Trade
Freight Order Backlog
DeliveryFleet
ScrapEconomy
Trade
Freight Order Backlog
DeliveryFleet
Scrap
Demand for shipping spaceSupply of shipping
space
0
2
4
6
8
10
12
14
16
18
2010E 2011E 2012E 2013E
growth(%)
80
85
90
95
100
105
110
(Index)
Gross Fleet
World trade
Freight Rates (RHS)
Source: Industry, I-Sec Research Source: I-Sec Research
Biggest risk from dry bulk, where even 20% scrapping may not help
To illustrate, global orderbook for dry bulk ships is ~46% of the current fleet size and
~17% of the current fleet is >25 years old. Even if 20% of the fleet retires in the next
three years, net increase in fleet size will still be 26% at 8% CAGR. Even in case of
slippages and the time period extending to five years, the fleet size will grow at ~5%CAGR. Since the fleet utilisation is already low, global dry bulk trade will have to grow
at a significant pace or freight rates are unlikely to improve. This will be difficult given
the historical track record.
Table 5: Fleet retirement may not be helpful
Service(000 nos)
dwt(mn)
Orderbook(dwt)(mn)
Orderbook(% of fleet)
Fleetretirement
(%)
Net fleetgrowth
(three-yearCAGR) Prospects
Tankers 6.7 449 114 25 10 4.9 Demand from the US and Europe isstill low ~7.5% of the fleet is singlehull. Actual fleet retirement couldeasily be in excess of 10%
Crude oil 2.1 320 90 28Oil product &others
4.6 129 25 19
Bulk carriers 8.2 513 236 46 20 8.0 Trade is unlikely to grow at this rate.We expect cancellations/delays andscrapping to increase in 11
Dry bulk 7.0 468 200 43Ore 0.1 30 33 110Others 1.1 15.5 3 18Others 10.2 281 61 22 NA
Source: Bloomberg, Industry, I-Sec Research; fleet as of October 10
As the orderbook will
be delivered in the next
few years, trade growth
may not be enough to
maintain freight rates at
even current levels
The orderbook for
dry bulk is more than
sufficient to meet
trade increases andfleet retirement
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and slippages and cancellations in dry bulk fleet will extract a price
A lot will depend on slippages and cancellations (currently ~40-50%), but shipbuilding
is faced with Hobsons choice slippages and cancellations mean loss of revenues
and if that does not happen, new orders will be delayed. In any case, we do not expect
a sharp revival in orderbook cycle in the dry bulk category, at least till FY14.
We expect a shake up in dry bulk fleet in 11-12 and revival in 13
We believe 11-12 will be the most crucial year for shipping and thus for shipyards. In
11, even if 50% of the expected deliveries do not happen, the fleet size will increase
10% which can not be met by trade growth. This will increase demand-supply
imbalance, creating even more pressure on freight rates, thus increasing
cancellations. We do not expect this imbalance to clear till 13, when the first genuine
stable orderbook cycle will start.
Chart 17: Shake up in dry bulk fleet imminent in 11-12
300
350
400
450
500
550
600
650
2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E
(mndwt)
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%Demand Supply Capacity Utilisation (RHS)
Source: Company data
Handymax and Handysized Silver lining does exist
For Indian shipyards, risks are lower because they construct smaller-sized Handymax
(also called Supramax) and Handysized bulk ships, which are used for transportation
at the regional level. Thus, their rates are dependent on regional growth something
which was witnessed in Asia Pacific where iron ore trade, and going forward, coal
trade will support the shipping industry. In our view, chances of cancellations for
smaller ships seem to be the least in the overall dry bulk segment.
In 11-12, dry bulk
fleet is unlikely to
increase owing to
cancellations and
scraping. As trade
keeps on increasing,
capacity utilisation
will increase leading
to rush of orders in
13, before
normalising beyond
15 to 05 levels
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Chart 18: In 09 and 10, Chinas iron ore importssupported Asia Pacific trade
Chart 19: Coal trade could boost growth in thefuture
0
10
20
30
40
50
60
70
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
(mnte)
0
50
100
150
200
250
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
2015E
(mnte)
0
100
200
300
400
500
600
700
800
900
1,000
(mnte)
India Imports
World Imports (RHS)
India's coal import to
rise by 22% CAGR
Source: Bloomberg, I-Sec Research Source: CEA, I-Sec Research
Chart 20: Baltic Handysize & Supramax indexes more stable than Baltic Dry
40
60
80
100
120
140
160
180
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Oct-10
Handysize Supramax Baltic Dry
Source: Bloomberg, I-Sec Research
What if trade continues to grow at 10%?
After the decline of ~4%, dry bulk trade is expected to grow ~8-12% in 10E, mainly on
the back of increasing commodities trade from China, Africa and Asia Pacific. Thus,
our bull-case scenario has factored in 10% growth till 12E, after which growth may
gradually normalise to 5%. This scenario is plausible if the US and European
economies recover, Indias demand for coal starts increasing and China continues to
be the iron ore giant.
In such a case, after the lull in 09-10, new orders may increase suddenly, which will
normalise only after 15 when trade growth starts coming down to ~5%.
Chinas iron ore
imports stabilised
Handy and Supra
indexes after the
great fall in 08-09.
With steel production
in China declining in
the past four months,
iron ore imports may
decline, but coal
imports will pick up
led by demand fromIndia
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Chart 21: Trade growth of 10% implies continued contracting of new orders
300
350
400
450
500
550
600
650
700
750
2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E
(mndwt)
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%Demand Supply Capacity Utilisation (RHS)
Source: Industry, I-Sec Research
Table 6: Orderbook will continue to grow
11E 12E 13E 14E 15E 16E 17E 18E 19E 20E
World trade (mnte) 3,720 4,055 4,379 4,686 4,967 5,215 5,476 5,750 6,038 6,339New orders (mn dwt) 25 54 61 41 44 46 48 50 52 54
Source: Company data
Offshore Demand drivers exist
Oil demand rising in spite of a subdued US and Europe
Oil prices have been rising gradually over the past year as demand from emerging
economies has not slowed down. According to IEA, Q3CY10 saw a demand and
supply of ~88mnbbd and ~87mnbbd respectively higher than pre-crash levels in
spite of the fact that US and Europe demand, which accounts for 40%+ of global
demand, is still subdued. This lends greater credence to the current rally.
Chart 22: Increasing global demand has gradually increased oil prices
84
85
86
87
88
2007 2008 2009 3Q2010
(mnbbd)
0
20
40
60
80
100
120
140
160
(US$/bbl)
World Demand World Supply Oil Price (RHS)
Source: Bloomberg, IEA, I-Sec Research
If trade keeps on
growing at ~10%,
capacity utilisation
and thus, freight
rates are unlikely to
come down. We maysee spurt in order
booking in 12-13,
after which orders
will normalise
Since 09, oil prices
have increased
steadily owing to
higher demand from
developing countries
such as China, and
liquidity. This rally
could be more
sustainable as the
US and Europe have
only shown subduedsigns of recovery
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Chart 23:..even though US & European demand isstill subdued versus pre-08 levels
Chart 24: when they contributed ~41% to globaldemand
14
15
16
17
18
19
20
21
2007
2008
2009
Q12010
Q22010
Q32010
(mnbbd)
US Europe
Europe
18%Others
46%
US
23%
India
4%
China
9%
Source: Bloomberg, IEA, I-Sec Research Source: IEA, BP, I-Sec Research
E&P expenditures have started increasing and will continue to rise inthe long term
After a decline in 09, major oil companies have increased upstream E&P expenditure
in conjunction with rising oil prices. As per our analysis of the quarterly performance,
all major oil companies (except Conoco Phillips) have increased their upstream E&P
expenditure 27-34%. Various reports suggest that E&P expenditures will continue to
rise in the long term as new fields will have to be developed to support even the
current production levels.
Chart 25: Increasing dependence on new fields
100
80
60
40
20
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2 035
Unconventional oil
Natural gas liquids
Crude oil: fields yet to be found
Crude oil: fields yet to be developed
Crude oil: currently producing fields
mb/d ~40-
50mnbdwill comefrom newoil fields
100
80
60
40
20
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2 035
Unconventional oil
Natural gas liquids
Crude oil: fields yet to be found
Crude oil: fields yet to be developed
Crude oil: currently producing fields
Unconventional oil
Natural gas liquids
Crude oil: fields yet to be found
Crude oil: fields yet to be developed
Crude oil: currently producing fields
mb/d ~40-
50mnbdwill comefrom newoil fields
Source: IEA, I-Sec Research
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Chart 26: means that E&P expenses willcontinue to rise
Chart 27: E&P expenses linked to oil prices
0
50
100
150
200
250
300
350
400
2004
2005
2006
2007
2008
2009
2010E
2011E
2012E
2013E
Capex&Opex(U
S$bn)
Africa Asia
Australiasia Eastern Europe & FSULatin America Middle East
North America Western Europe
0
100,000
200,000
300,000
400,000
500,000
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
(US$mn)
0
25
50
75
100
125
(US$/bbl)
Source: Industry, I-Sec Research Source: Industry, I-Sec Research
Daily rates have started inching up
In conjunction with the gradual increase in oil prices, rig rates, numbers of operational
rigs and day rates for Anchor Handling Tug & Supply (AHTS) ships have moved up
from the lows in 09. We believe it is only a matter of time before utilisation and daily
rates improve further owing to stability in oil prices, increasing demand and growing
E&P expenditure.
Chart 28: AHTS rates have started inching up with increasing oil price
Oil Prices vs AHTS Prices
0
50
100
150
200
250
300
350
400
450
500
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Oil Prices Index AHTS Prices Index
Source: Industry, BP, I-Sec Research
Table 7: and so have the rig rates
Type of rig Estimated rates Current 6 mnths ago 1 year agoHigh Spec Jack-ups 150 130 120 120Old Jack-ups 80-100 70-90 80 705G Harsh 500 450 525 5255G International 450-500 400 450 510
Source: Industry, I-Sec Research
AHTS day rates
generally move in
line with oil prices.
They have juststarted recovering
after the fall in 09
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Chart 29: Number of operational rigs has also increased since 09
1,500
2,000
2,500
3,000
3,500
4,000
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
(Nos)
Source: Bloomberg
Age profile of support fleet adds to the demand
Moreover, ~44% of the offshore fleet is more than 25 years old a result of the 09 erawhen sudden decrease in oil prices led to a postponement of new orders. Thus, if the
current trend in oil prices continues for some more time, we may see a revival in the
order cycle of the offshore business.
Chart 30: About 44% of the offshore fleet is >25 years old
>25 years
>20 years
>15 years
>10 years
44%
Source: Industry, I-Sec Research
H2CY11 may see revival in new orders in support vessels
In spite of the strong demand factors coming into play, we do not see a major upsurge
in global offshore orderbook, till at least end-FY11. The reason is obvious fall of oilprices created an excess capacity in 09, which will get cleared first before any
increase in day rate. Once day rates increase and companies show more confidence
on the rise in oil price and demand, a revival will ensue in new orders. This may take a
year and we expect orderbook of support vessels to revive in the second half of CY11
based on scrapping of old ships, stronger signs of revival in the US and Europe and
stability in oil price. However, as regards rigs, it may take some time as orders, which
have already been placed, will get delivered in the next 2-3 years.
As oil prices fell in
08-09, many rigs
were shut down.
However, with
increasing oil prices,
the number ofoperational rigs has
started rising again
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Chart 31: OSV order cycle to revive as early as 11
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
(nos
)
0
100
200
300
400
500
600
700
(nos
)
Fleet Size New Orders (RHS)
Source: Industry, I-Sec Research
Chart 32: Imbalance between demand and supply to stabilise post 17
0
100
200
300
400
500
600
700
201
0E
201
1E
201
2E
201
3E
201
4E
201
5E
201
6E
201
7E
201
8E
201
9E
202
0E
(Nos)
Real Demand Increase Actual Deliveries Overall Shortfall (RHS)
Source: Industry, I-Sec Research
Between 10 and 13,
demand will risemore than deliveries,
thus spiking shortfall
and day rates
Between 13 and 17,
the opposite will
happen. Post 17, the
industry will stabilise
with normal growth
and shortfall will be
maintained at normal
levels
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Rigs Industry turning positive?
Excerpts from Rig Zone
Since the start of October, drilling companies have ordered at least 17 new rigs, a wave of spending
that signals optimism that oil prices will remain high and that producers will continue to demand the
latest advances in equipment as they tap increasingly hard-to-reach offshore reservoirs. These
orders mark a clear ending to a two-year drought in rig purchases as drillers such as Transocean,
SeaDrill and Atwood Oceanics look to update and bolster their fleet. Of the 17 orders so far thisquarter, 13 are for jackup rigs, by comparison, only eight jackups were ordered in the two years that
ended September 30.
According to some analysts, some of the recent rise can be attributed to pent-up demand that has
"sprung to life" with improved financing and construction costs that have fallen by as much as 20%
since 2008. Most of the orders are intended to address arising demand and rejuvenate aging fleets.
The global jackup fleet of 466 includes 338 rigs that were built before 1990, according to energy
analysts Tudor Pickering Holt & Co. Those older rigs are increasingly losing work to newer rigs,
which producers are choosing both because they need the added drilling power and because they
offer efficiencies, according to analysts. A rig with more storage space, for example, can mean
savings through fewer supply boat trips.
Like other companies, Atwood Oceanics cites the widening gap between the dayrates of newer rigs
and those of older ones in placing its orders. It expects the new rigs to bring in between US$130,000and US$150,000 per day once deployed in 2012.
According to other analysts, Brazil's Petrobras could order nine of its proposed 28 new deep-water
rigs before year's end. And analysts with Barclays Capital said in a recent study that companies in
India and China are planning orders.
Increasing expenditure by Indian Navy could provide further fillipThe Indian Navy makes large defence ships in government-owned shipyards, but
issues contracts to private shipyards such as ABG, Bharati and Pipavav for smaller
ships such as interceptor boats.
As the defence requirement is increasing, the Navy is also increasing its collaborationwith the private sector. While we do not expect high-value, big-ticket orders (example
aircraft carriers) to come to the private sector, low-ticket orders should provide strong
stability in the event of a downcycle in the shipping business.
Chart 33: Budget allocation to defence
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY09 FY10 FY11E FY12E
(Rs
bn)
Total Navy
Source: Ministry of Defence, I-Sec Research
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Key differentiators Indian shipyards & global peers
Extension of subsidy will provide strong boost
In 05, the Government extended the shipbuilding subsidy scheme to the private sector
(the scheme covered public sector shipyards). The scheme allowed private sector
shipyards to get 30% of the ship order price as subsidy from the Government. The
scheme was applicable on a certain class of ships and the price was to be determined
by the Directorate General of Foreign Trade. The scheme is, as of now, applicable to
only those ships for which orders were placed through April 02-August 07.
We have not factored in extension of subsidy, but it is plausible
Discussions are ongoing between the Ship Manufacturing Association of India and the
Government to extend and expand the scheme. We believe, while expansion of the
scheme may not be likely, the extension is plausible, especially when globally,
Governments are increasingly extending their support to the shipbuilding sector.
However, we have not included this possibility in our valuations, but have separately
valued subsidy that is due from the Government as on date.
How much subsidy is due?
Excerpt from The Hindu (April 1, 09)
New Delhi, April 1, ABG Shipyard can claim Rs17bn as shipbuilding subsidy from the Government,
followed by Pipavav Shipyard (Rs10.5bn) and Bharati Shipyard (Rs10bn) over the next four-five
years. Larsen & Toubro can claim Rs3.75bn, Tebma Shipyards Rs2.7bn and the Government-owned
Cochin Shipyard can claim Rs2.55bn, according to sources in the know.
The Government, in the last week of February, approved a move to disburse about Rs51bn as
shipbuilding subsidy to domestic shipyards for orders secured till August 15, 2007. The subsidy will
be disbursed when the shipyard concerned delivers the ships to its customers. So, in case a buyercancels his order due to any reason, the shipyard will not receive any subsidy for that order.
ABG Shipyard has deliveries lined up till 2013, for which it can claim the Rs17bn subsidy. Based on
our current delivery position, a subsidy of Rs1.2bn is already due. The Rs17bn subsidy is for orders
that will be delivered till 2013, Mr Dhanajay Datar, Chief Financial Officer, ABG Shipyard, told
Business Line. Bharati Shipyard, meanwhile, has already delivered vessels for which the
Government has to disburse subsidies of about Rs3bn.
The scheme positively impacted the sector
The scheme has had a strong impact on the sector providing ~4-10% EBITDA
margin boost, depending on revenue booking. However, it has not significantly aided
working capital management as payments by the Government have been delayedsignificantly. Nevertheless, continuation of the scheme will help the sector significantly
as it will allow shipyards to price more competitively in the current downcycle.
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Chart 34: EBITDA margin comparison Chart 35: Margin boost of 4-10% from subsidybooking
0%
5%
10%
15%
20%
25%
30%
ABG
ABGEx
Subsidy
Yang
Jiziang
Cosco
Hyundai
Heavy
Samsung
Heavy
Daewoo
India China Korea
EBITDAMargi
0%
5%
10%
15%
20%
25%
30%
35%
FY04 FY05 FY06 FY07 FY08 FY09 FY10
ABGEBITDAMa
rgi
Core Margin Subsidy
Source: Bloomberg, Company, I-Sec Research Source: Bloomberg, Company, I-Sec Research
Government support to shipbuilding extended globally
Shipbuilding has always been important for countries as it brings in foreign exchange,
employs many people and is essential for the development of trade. Thus, many
countries have had a focused strategy to promote shipbuilding. Hence, shipbuilding
industry, which was first centred in Europe, moved to Japan and then to Korea and
now seemingly to China China for example, has always provided working capital
loans at less than 3% interest rate and subsidy for inland ships. It is now also giving
17% subsidy to shipping companies that book ships in Chinese shipyards. Brazil has
been trying to grow its shipbuilding industry through a slew of public-private sector
initiatives. The Indian Government has not, as yet, extended the old subsidy scheme
(30% of ship price as determined by DGFT for ships ordered before August 07).
Table 8: Support schemes from Governments for shipbuilding
China India
17% subsidy on prices for Chinese ship buyers 30% subsidy but only for ships that were orderedbefore August 07
Preferential interest rates for buildersBanks to finance shipbuilding through USD bond issuanceAnd assist shipyards in M&As
Source: Industry
Government participation still high in the sector
The Government has strong presence in the Indian shipbuilding sector via seven
shipyards that build merchant, defence and offshore ships. In terms of orderbook,some Government shipyards may be smaller than private shipyards, but they have the
ability to build tankers, large cargo ships and defence ships. They also receive a
subsidy (export orders are subsidised 30% by the Government). This makes the
Government a stronger player in the industry.
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Chart 36: Shipyards in India
Kolkata
Vishakhapatnam
Goa
Surat
Kochi
Cochin Shipyard
Hoogly Dock
Hindustan Shipyard
Goa Shipyard
Garden Reach Shipbuilders
ABG Shipyard
Dahej
Dabhol
Pipavav
Mumbai
Chennai
Pipavav Shipyard
Bharati Shipyard
L&T Shipyard
Bharati Shipyard
Private
Government - Commercial
Government - Defence
Kolkata
Vishakhapatnam
Goa
Surat
Kochi
Cochin Shipyard
Hoogly Dock
Hindustan Shipyard
Goa Shipyard
Garden Reach Shipbuilders
ABG Shipyard
Dahej
Dabhol
Pipavav
Mumbai
Chennai
Pipavav Shipyard
Bharati Shipyard
L&T Shipyard
Bharati Shipyard
Private
Government - Commercial
Government - Defence
Source: Industry, I-Sec Research
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Indian shipyards, recent entrants in building merchant ships
Until FY08, Indian private sector shipyards had been focusing on building offshore
support vessels used by the oil &gas industry. This allowed them to create their own
niche even as Chinese shipyards started competing with Korean counterparts in
merchant shipbuilding. The focus on offshore also protected them from the cyclical
nature of the shipping industry. However, it also limited scope of growth and in recentyears, we have seen larger private sector shipyards entering the merchant
shipbuilding arena ABGs expansion and Pipavavs IPO reflected this.
Increased dependence on offshore will continue
The oil & gas sector still plays a significant role. Both ABG and Bharati have ~50% of
their orderbooks based on offshore vessels and rigs. Even Pipavav Shipyard, which
focuses on merchant ships, has seen orderbook growth owing to ONGCs offshore
supply vehicle order of ~Rs5bn. This compares favourably with China where complete
focus is on building merchant ships and South Korea where focus is on building, apart
from merchant ships, sophisticated offshore equipment.
Chart 37: Offshore and related orderbook as a percentage of total orderbook
30%
35%
40%
45%
50%
55%
60%
ABG Bharati Samsung Hyundai
Indian Shipyards Korean Shipyards
Source: Industry
Indian shipyards strength Customisation of ships
The Chinese are focusing on economies of scale to build large dry bulk carriers and
tankers. However, they are not able to customise ships and it is this strength that
Indian shipyards have exploited in the offshore segment. On the other hand, Koreans
are building technologically savvy and sophisticated ships and offshore supportequipment and vehicles.
Thus, contracting with suppliers differs accordingly. International shipyards place
orders for steel plates at the time of requirement which ensures lower working
capital requirement but higher uncertainty as regards costs. On the other hand, Indian
shipyards normally lock in steel costs, but this increases working capital requirement.
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Chart 38: Indian shipyards differ from international peers in vendor contracts
Time 50-70% 20-40% 10%
Building event Contract Designing Steel cutting Keel laying Launching Delivery
Receivables
Payables
Raw materials
Main engine
Machinery
Steel
Execution Ordering by International Shipyards Ordering by Indian Shipyard
Time 50-70% 20-40% 10%
Building event Contract Designing Steel cutting Keel laying Launching Delivery
Receivables
Payables
Raw materials
Main engine
Machinery
Steel
Execution Ordering by International Shipyards Ordering by Indian Shipyard
Source: Industry, I-Sec Research
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Index of Tables and Charts
Tables
Table 1: Indian shipyards inclined more towards offshore ................................................... 3Table 2: Growth drivers take off............................................................................................ 4Table 3: How will the dry bulk cycle play out? ...................................................................... 5Table 4: Assumptions ........................................................................................................... 5Table 5: Fleet retirement may not be helpful ...................................................................... 10Table 6: Orderbook will continue to grow ........................................................................... 13Table 7: and so have the rig rates................................................................................... 15Table 8: Support schemes from Governments for shipbuilding.......................................... 20Charts
Chart 1: Increasing oil price and E&P expenditure ............................................................... 4Chart 2: New orders Bull versus base case....................................................................... 5Chart 3: Percentage of SCI ships older than 20 years ......................................................... 6Chart 4: Macro indicators for merchant shipping have improved percentage change...... 7Chart 5: Some companies have raised ~US$3bn to fund asset acquisitions....................... 7Chart 6: GDP growth likely to be +4%... ............................................................................... 8Chart 7: while sea trade could touch ~6% ........................................................................ 8Chart 8: Baltic Dry sluggish, but similar to 03 levels ............................................................ 8Chart 9: and only tanker rates are sluggish ...................................................................... 8Chart 10: Oil prices and demand high............................................................................... 8Chart 11: New orders could easily cross ~60mnGT ............................................................. 8Chart 12: Dry bulk trade has rebounded............................................................................... 9Chart 13: Oil trade improving gradually with improving demand from Europe and US........ 9Chart 14: Led by GDP & world trade growth, new order CAGR at 25% in 1999-07............ 9Chart 15: Since, world trade, deliveries and freight rates correlated.............................. 10Chart 16: as the deliveries rise, current rates may come under pressure ...................... 10Chart 17: Shake up in dry bulk fleet imminent in 11-12 ..................................................... 11Chart 18: In 09 and 10, Chinas iron ore imports supported Asia Pacific trade................ 12Chart 19: Coal trade could boost growth in the future ........................................................ 12
Chart 20: Baltic Handysize & Supramax indexes more stable than Baltic Dry................... 12Chart 21: Trade growth of 10% implies continued contracting of new orders .................... 13Chart 22: Increasing global demand has gradually increased oil prices......................... 13Chart 23:..even though US & European demand is still subdued versus pre-08 levels 14Chart 24: when they contributed ~41% to global demand .............................................. 14Chart 25: Increasing dependence on new fields............................................................. 14Chart 26: means that E&P expenses will continue to rise........................................... 15Chart 27: E&P expenses linked to oil prices ....................................................................... 15Chart 28: AHTS rates have started inching up with increasing oil price......................... 15Chart 29: Number of operational rigs has also increased since 09 ................................... 16Chart 30: About 44% of the offshore fleet is >25 years old ................................................ 16Chart 31: OSV order cycle to revive as early as 11 ........................................................... 17Chart 32: Imbalance between demand and supply to stabilise post 17 ............................ 17Chart 33: Budget allocation to defence............................................................................... 18Chart 34: EBITDA margin comparison ............................................................................... 20Chart 35: Margin boost of 4-10% from subsidy booking..................................................... 20Chart 36: Shipyards in India................................................................................................ 21Chart 37: Offshore and related orderbook as a percentage of total orderbook.................. 22Chart 38: Indian shipyards differ from international peers in vendor contracts .................. 23
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Market Cap Rs22bn/US$0.5bn Year to Mar (Consol) FY10 FY11E FY12E FY13EReuters/Bloomberg ABGS.BO/ABGS IN Revenue (Rs mn) 18,077 23,200 29,056 39,337
Shares Outstanding (mn) 51 Rec. Net Income (Rs mn) 2,181 2,423 2,784 4,246
52-week Range (Rs) 484/192 EPS (Rs) 39.0 47.6 54.7 83.4
Free Float (%) 42.9 % Chg YoY 15.9 22.1 14.9 52.5
FII (%) 12.4 P/E (x) 11.1 9.1 7.9 5.2
Daily Volume (US$/'000) 20,423 CEPS (Rs) 46.6 58.8 72.1 102.0
Absolute Return 3m (%) 82.0 EV/E (x) 15.4 10.7 8.3 5.6
Absolute Return 12m (%) 103.7 Dividend Yield (%) 1.1 1.1 1.1 1.1
Sensex Return 3m (%) 7.6 RoCE (%) 9.7 9.4 10.3 13.1
Sensex Return 12m (%) 16.8 RoE (%) 20.5 20.6 19.7 24.4
ABG Shipyard BUY
In shipshape Rs432Reason for report: Initiating coverage
Equity ResearchDecember 6, 2010
BSE Sensex: 19967
Shipbuilding
Target price Rs579
Shareholding pattern
Mar10
Jun10
Sep10
Promoters 57.1 57.1 57.1Institutionalinvestors 30.1 27.7 28.9MFs and UTI 1.4 0.9 0.3FI&Banks 0.5 0.6 0.7FIIs 12.8 10.8 12.4
Others 12.9 15.3 14.1
Source: NSE
Price chart
150
250
350
450
550
Dec-09
Jan-10
Apr-10
May-10
Jul-10
Sep-10
Nov-10
(Rs)
Sanket [email protected] 22 6637 7159
ABG Shipyard is the largest shipyard in India with ~Rs141bn orderbook, of which
~Rs100bn is yet to be executed, providing revenue visibility till FY14E. This gives
ABG sufficient headroom to ride out volatile economic factors. The company is
well poised to exploit impending growth in the offshore business led by: i) core
strength and track record, ii) strong clientele, iii) completion of capacity addition
in FY12, increasing execution pace and technical capability and iv) its success in
receiving subsidy from the Government in FY10 alone, it received ~Rs750mn).
Based on FCFE, we value ABGs core business at ~Rs459/share and subsidy
payments at ~Rs120/share. We initiate coverage on ABG with BUY.
Well poised to exploit offshore dynamics. In the past two years, new orders had
dried up in the offshore industry, but given the improvement in industry dynamics inthe past one year and as >40% of the fleet (offshore + related) is still >25 years old,
it is only a matter of time before pent-up demand leads to new contracts.
Strength in offshore to minimise the impact of dry bulk concerns. We factor in
Rs12bn new orders in FY12E, ~Rs19bn in FY13E and ~Rs45bn FY14E onwards
from offshore vessels alone. Order cycle in dry bulk is unlikely to start before FY14,
but ABGs strength in offshore, current orderbook and strong client base are enough
to ride out concerns in the dry bulk segment.
Improving execution capability; rig business to provide further upside. ABG is
investing ~Rs3bn more to install large ship platform at Dahej, which will allow it to
build
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TABLE OF CONTENTS
Investment argument.....................................................................................................27Valuations cheap...........................................................................................................28Current orderbook provides revenue visibility till FY14.................................................30New order expectations Initial growth to come from offshore....................................30Low risk of cancellation on orderbook; strong clientele ................................................32Large ship platform will increase execution capability at Dahej....................................33Margin erosion factored in for new orders ....................................................................34Subsidy To be or not be?...........................................................................................34
Consolidated financials.................................................................................................35Index of Tables and Charts...........................................................................................39
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Investment argument
What we prefer aboutABG?
Revenue visibility till at least FY14
Well poised to exploit offshore opportunity
Improving execution capabilities
Strong clienteleWhat concerns us?
Some clients (ex Scan Shipping) had cancelled ship building contracts in the past because of slow execution.ABG had to reschedule its deliveries to Precious Shipping because of construction problems. Significant delaysmay not go down well with clients
~22% of the orderbook is from group companies, though this could be positive as ABG is reportedly enteringcoal trading as well
What are potentialupsides?
Orders from the defence sector
Orders for rigs
Revenue from other businesses such as ship repairValuations
We value ABG at ~Rs459/share + 120Rs/share in subsidy; FCFE (CoE 14%, terminal year FY22, terminalgrowth 4%).
At the current market price of ~Rs432, our target price yields ~34% upside. Initiate with BUY.
Table 1: I-Sec assumptionsCurrent status I-Sec view
Revenue visibility The current orderbook is at ~Rs140bnand unexecuted book at ~Rs100bn. Thisgives revenue visibility till at least FY14
Revenue CAGR 22% till FY16E FY13 to be the peak year for execution of the current orderbook In FY14E, we expect ~49% of the revenues to come from new orders
New orderexpectations
New orders are not flowing in. In 10,ABG won orders for three cementcarriers and two rigs, amounting to~Rs24bn. However, ~Rs20bn worthorders have come from group company
ABG will benefit from early revival in offshore vessels We expect ~Rs12.3bn new orders in FY12E and ~Rs19bn in FY13E
all from offshore. We do not expect new orders from dry bulk shipping,till FY14E
We have not factored in any orders for rigs and navy, which willprovide potential upside
Cancellation risk onorderbook
Shipping companies are profitable at current freight rates Currently, ABGs three big clients have clean balance sheets, strong
history and replacement demand Thus, we do not believe ABG will face any cancellations
Pace of execution ofcontracts
As per our research, Scan Shipping hadcancelled its contract with ABG owing tolate delivery of ships, till Pacific FirstShipping (a group entity) stepped in. Thecontract value was ~Rs3.7bn. As percompany, the cancellation may havehappened owing to bankruptcy. ABGhad received ~50% of the value in anycase
While Dahej Shipyard is complete, ABG is installing a shift lift crane,which will expand capacity to build ~108,000-120,000dwt ships
This will increase execution pace for smaller ships Once this lift is complete, we expect execution rate to increase, thus
reducing delays
Subsidy ABG has booked ~Rs4.5bn of subsidyon its balance sheet, of which~Rs650mn is due from the Government.The rest will be due as and when thecompany completes its delivery
ABG has received ~Rs1.4bn cash subsidy so far from theGovernment
In FY10, ~Rs1.3bn was due, of which the company received~Rs750mn till date
We see no reason why we should not value subsidy due from theGovernment so far
We have not factored in continuation of the subsidy scheme For the current orders, we have taken a declining subsidy benefit (9%
in FY11E to ~2% in FY14E) to account for execution of orders placedtill August 07
Margins and steelprice rise
About 65% of the costs are linked tosteel prices. At present, ABG managesthis risk by purchasing steel at the timeof designing. This protects margins at~20% but increases working capitalcosts
We estimate ~60% of the current orderbook to be of 08 era whenhigh new build prices allowed margins of ~22%+.
For these and following orders, we have maintained EBITDA marginof ~20%
For new orders, we have reduced margins to ~17% to account forsteel prices and lower new build prices
Source: Company data, I-Sec Research
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Valuations cheap
We value ABG based on FCFE assuming FY22 as the terminal year, 4% growth and
14% (8%+1.2x*5%) as cost of equity. Thus, we ascribe ~Rs579/share value to ABG.
Core business and subsidy payments valued through FCFE
Our valuation includes ~Rs10.5bn as subsidy payment from the Government in the
next six years (~Rs4.5bn for subsidy booked till FY10, ~Rs6bn for subsidy to be
generated till FY14), which translates into ~Rs120/share. We have not assumed any
continuation of the subsidy scheme. The 60% stake in Western India Shipyard (WISL)
is valued at the market price (WISL trades at ~Rs14/share) less the cost of acquisition.
Since the WISL acquisition was a bankruptcy case, we believe ABG would have got
the company at a discount (acquisition price Rs10/share). According to ABG, the total
expenditure on WISL may amount to
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Peer comparison
The company is currently trading at ~8x FY12 EV/EBITDA compared to global peers
which trade at 6x-15x with lower EBITDA margins. We believe FCFE valuations
reflect a clearer picture as they factor in margin decline and lesser orders going
forward.
Table 6: Valuations attractive versus global peersPrice performance EBITDA Margin (%) EV/E (x) RoE (%) P/E (x)
BloombergYearEnding (6 mths) (5 days)
FY10/CY09
FY11/CY10
FY12/CY11
FY11/CY10
FY12/CY11
FY10/CY09
FY11/CY10
FY12/CY11
FY11/CY10
FY1CY1
Pipavav Shipyard PIPV IN 03/11 Y (10.9) 9.7 (16.5) 6.7 18.3 88.3 16.6 (3.2) 1.1 12.5 280.5 22ABG Shipyard ABGS IN 03/11 Y 72.7 6.4 17.8 19.3 18.6 10.7 8.3 20.5 20.6 19.7 9.1 7Bharati Shipyard BHSL IN 03/11 Y (12.3) 2.7 18.7 20.5 16.8 9.3 12.9 17.1 13.3 13.3 5.6 8Chinese shipyardsGuangzhou Shipyard Intl 600685 CH 12/10 Y 17.2 (5.6) 14.2 10.9 10.1 11.1 11.1 20.5 19.0 16.1 18.1 18Yangzijiang Shipbuilding YZJ SP 12/10 Y 50.0 4.4 21.5 23.0 20.9 10.5 9.6 38.8 34.5 27.7 12.9 12Cosco Corp Singapore COS SP 12/10 Y 47.2 3.4 11.4 14.3 14.6 10.3 8.7 11.2 16.6 18.2 24.1 19South Korean shipyardsDaewoo Shipbuilding 042660 KS 12/10 Y 57.8 (1.9) 7.2 9.5 9.0 5.9 6.2 27.8 20.9 17.6 7.5 7Samsung Heavy Industries 010140 KS 12/10 Y 43.2 (2.2) 9.3 10.2 10.0 7.0 7.0 27.2 27.5 21.8 8.5 8Hyundai Mipo Dockyard 010620 KS 12/10 Y 31.1 (4.0) 11.6 16.8 15.4 3.5 3.8 16.9 18.1 14.5 6.5 6Hyundai Heavy Industries 009540 KS 12/10 Y 60.7 (3.7) 12.6 17.2 15.6 7.9 8.1 29.9 29.4 21.8 7.9 8Stx Offshore & Shipbuilding 067250 KS 12/10 Y 100.5 (6.2) 3.6 5.9 5.2 12.8 15.1 9.2 8.7 10.1 12.5 10Japanese/Other shipyardsMitsui Engineer & Shipbuild 7003 JP 03/11 Y (3.9) - 7.3 8.3 8.5 5.5 5.4 12.5 9.4 15.0 11.2 9Sumitomo Heavy Industries 6302 JP 03/11 Y (1.7) 2.1 8.0 10.5 11.4 6.2 5.5 3.7 8.0 8.9 15.3 13Mitsubishi Heavy Industries 7011 JP 03/11 Y (11.7) (1.0) 7.5 7.9 8.0 9.6 9.1 1.1 2.0 2.2 41.6 30Bergen Group As BERGEN NO 12/10 Y (15.1) (1.8) 6.9 7.0 6.2 3.1 3.4 9.6 2.3 3.3 11.6 9Source: Company data, Bloomberg, I-Sec Research
Table 7: DCF valuations
(Rs mn)Valuation ex-subsidy FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E
EBITDA 4,115 5,045 7,133 7,153 6,977 8,966 9,959 10,108 9,414 9,046 9,070 9,096
Less interest 2,283 2,406 2,158 1,799 1,484 1,232 1,026 846 667 487 397 397Less taxes 416 579 1,330 1,447 1,490 2,222 2,612 2,713 2,537 2,468 2,498 2,500Operating cash flow 1,415 2,060 3,645 3,907 4,004 5,511 6,322 6,548 6,211 6,091 6,175 6,200Change in WC 7 (1,673) (4,090) (1,357) (698) (3,449) (1,589) (313) 959 463 (135) (142)Post WC 1,422 387 (445) 2,551 3,305 2,062 4,733 6,235 7,170 6,554 6,040 6,058Capex (2,015) (1,015) )247 (257) (259) (261) (264) (266) (269) (271) (274) (276)Debt repayment (2,000) (1,500) (3,996) (3,996) (2,996) (2,596) (1,996) (1,996) (1,996) (1,996) - -FCFE (2,593) (2,128) (4,687) (1,701) 51 (795) 2,473 3,974 4,906 4,287 5,766 5,781
- 1 2 3 4 5 6 7 8 9 10(2,128) (4,112) (1,309) 34 (471) 1,285 1,810 1,960 1,503 1,773 1,560
- 1 2 3 4 5 6 7 8 9 10
Subsidy 1,373 1,421 1,864 2,000 1,185 - - - - - -Discounted value 1,373 1,246 1,434 1,350 702 - - - - - -Terminal Value Rs bn 15.5Total Value Rs bn 20.5Subsidy Rs bn 6.1
Source: Company data, I-Sec Research
Initiate with BUY
Our FCFE valuation suggests ~34% upside from the current market price. We initiate
coverage on ABG Shipyard with BUY recommendation.
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Current orderbook provides revenue visibility till FY14
At present, ABGs ~Rs140bn order book is the highest in the Indian shipyard industry,
even higher than some public shipyards orderbooks. The unexecuted portion of
~Rs100bn provides revenue visibility till FY14. This orderbook will continue todominate ABGs revenue till FY13, after which the companys dependence on new
orders will increase in our view.
In line with our positive view on offshore vessels and rigs, we believe short-term
growth in ABG will be offshore-led, which has been the companys core strength.
Growth in offshore and revenues from the current orderbook are adequate shields
against short-term concerns in dry bulk shipping.
Table 8: Orderbook break up
Segment Vessel type Number of ships Total (Rs bn)Defence Interceptor, pollution control 7 3.3
MerchantCement carrier 3 3.8Handysize 26 36.9Supramax 15 24.9
Total 44 65.7
Offshore & rigs AHTS 15 14.1Diving support 3 2.8Platform supply 3 6.5Rigs 4 41.3
Total 25 64.6
Others 7 8.0Total 83 141.7
Source: Company data, I-Sec Research
Chart 1: ABGs net orderbook highest in India Chart 2: Current orderbook offers revenue visibilitytill FY14, but with rising reliance on new orders
0
20
40
60
80
100
120
ABG Pipavav Bharati Cochin
Shipyard
(Rsbn)
0
10
20
30
40
50
60
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
Rsbn
Current Orders New Orders
6 yr CAGR: 22%
Note: Cochin Shipyard has an aircraft carrier, the value of which isunknownSource: Company, I-Sec Research
Source: I-Sec Research
New order expectations Initial growth to come from offshore
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We believe ABGs orderbook will be led by offshore vessel construction, which is
witnessing demand. We expect the net orderbook of ~Rs100bn to decline to ~Rs59bn
in FY13E before new orders from offshore and merchant shipping (in FY14) fuel
growth. The net orderbook will stabilise at ~Rs95bn after FY17E, with execution
keeping pace with new order inflows.
Chart 3: Merchant shipbuilding orders to stabiliseafter FY17 Chart 4: Offshore vessel construction will reportstrong order contracting from FY12
0
5
10
15
20
25
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
(Rsbn)
0
0.1
0.2
0.3
0.4
0.5
0.6
(mndwt)
Value Size (RHS)
05
10
15
20
25
30
35
40
45
50
FY11
FY12
FY13
FY14
FY15
(Rsbn)
05
10
15
20
25
30
35
40
45Value Nos (RHS)
Source: Industry, I-Sec Research Source: I-Sec Research
However, growth in offshore will change the orderbook mix ABGs dependence on
the offshore industry will increase to earlier levels.
Chart 5: Back to the future ABG will again depend more on offshore
Current orderbook at ~Rs141bn FY15E orderbook at ~Rs139bn
46%
54%
21%
79%
Merchant
Offshore & Others
Source: Company data, I-Sec Research
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Rigs and defence orders Upsides not factored in
As of now, we have not factored in potential orders from rig construction and the
Indian navy. ABG is a new entrant in rig construction (it requires high technical
expertise) with its first delivery in 11-12 to the Essar Group.
As regards orders from the Indian navy, ABG, in our view, will face stiffer competition
from Bharati and Piavav, which have greater spare capacity to service the defencesector. Thus the orders will be erratic and we view them as an upside.
The rig business offers significant potential for ABG. The company started its rig
construction business in FY09 and is currently executing orders for Essar (two rigs)
and Drilling & Offshore (two rigs), a group company valued at ~Rs41.3bn.
Larger shipyards in Korea have started focusing on constructing sophisticated
deep water rigs, which has created an opportunity for companies such as ABG
some smaller clients may simply replace old rigs.
Anecdotal evidence suggests pent-up demand for rigs after insignificant orders. In
October 10 alone, ~13 jack-up rigs were booked versus just eight in the past twoyears globally. If oil prices remain stable, rig orders might grow significantly in 11.
We have not factored in orderbook growth in rigs, mainly because it requires
greater technological and technical expertise to establish presence in the industry.
ABG is a recent entrant and will make its first delivery in 11-12 to Essar.
Once the company proves its technological capability, it will gain significant
traction in the business.
Low risk of cancellation on orderbook; strong clientele
We have independent verified ~66% of ABGs current orderbook. Barring one, we are
fairly impressed by the strength of ABGs clients, both in terms of experience in theshipping business (Vogemann) and financial strength (Precious Shipping Company).
Chart 6: About 68% of ABGs orderbook robust
Unverified
10%
Verified
66%
Group Companies
22%
Indian Defence
2%
Source: Company data, I-Sec Research
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Precious Shipping, Thailand. The company is listed and is cash positive, thus
providing greater security to ABGs orderbook. Precious Shipping sold nearly 10 old
vessels during the peak of 07 and has sold ~25 more ships since 09. This has rapidly
brought down its fleet size to 21. It has strong focus on regional trade and sub-handy
max ships. Thus, it may be able to withstand any pressure in the dry bulk shipping
area and can even expand its fleet to take advantage of lower prices.
Vogemann, Germany. Vogemann is a merchant player with stronger focus on dry
bulk. More importantly, it started operations in 1876 and given its experience, we do
not see any concern in its orderbook.
Deep Sea Supply, a listed offshore player, is relatively new to the industry and was
established in 06. Since then, the company has grown, having 25 ships in the offshore
space. Order cancellation is unlikely as orders are in the final stage of completion.
Key concerns. About Rs31bn of ABGs orderbook, of Rs141bn total, is dependent on
Pacific First Shipping and Drilling & Offshore, which are a part of the ABG Group. This
is negative as well as positive as ABG is reportedly venturing into coal trading which
can boost the shipyard business.
Chart 7: Client-wise breakup
Others
Pacific First
Drilling & Offshore
Essar
Precious Shipping
Vogemann
Deep Sea Supply
Indian
Coast Guard
0
10
20
30
40
50
60
70
80
90
100 The current order book does not do full justice. ABG has
delivered - 3 vessels in FY11 alone.
Fleet Size On Order D:EFrom ABG
24 5 75:254
21 13 NA12
21 18 25:7518
25+13 12+2 45:556+2
These tw o ompanies are group companies accounting for
~21% of the order book
Segement
Offshore
Merchant
Dry Bulk
Merchant +
Offshore
Source: Company data, I-Sec Research
Large ship platform will increase execution capability at Dahej
ABG has faced delivery concerns in the past it had to renegotiate its delivery
schedule with Precious Shipping; also its group company had to step in to protect the
contract with Scan Shipping. However, we believe this risk will reduce substantially
going forward, especially when the company installs the large ship platform at Dahej.
ABG is spending ~Rs3bn for the crane, which will become operational by FY12 in our
view. Moreover, the crane will allow ABG to make ~120,000dwt of ships, which will
propel the shipyard into significantly higher league in terms of technological capability.
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Chart 8: Margin to stabilise at 17% post FY16
0
10
20
30
40
50
60
FY06 FY07 FY08 FY09 FY10 FY11EFY12EFY13E FY14EFY15EFY16E
(Rsbn)
10%
12%
14%
16%
18%
20%
22%
24%
26%Ship Building Margins (RHS)
Source: Company, I-Sec Research
Margin erosion factored in for new orders
ABG normally quotes prices which yield +20% EBITDA margin after factoring in raw
material cost. However a lag of ~3-6 months exists between winning a contract (which
more or less fixes the ship building price) and signing the corresponding contract with
the vendors (which depends on the final ship design). Marginal cost escalations have
always been factored into the contract, but in 08-09 when commodity prices fluctuated
wildly, ABG suffered either margin wise or in terms of locking inventory.
Now that the prices are more stable, we believe ABGs margins will remain stable at
~19-20% for execution of the current orderbook. However, we have factored in lower
margins of ~17% for the new orders, mainly to factor in lower new build prices.
Subsidy To be or not be?
ABG has benefited the most from subsidy, with ~Rs1.35bn cash receipts till date. In
April 09, reportedly, the Government allocated ~Rs51bn towards subsidy to shipyards,
of which ABG alone is entitled to ~Rs17bn by FY13E. While the budgetary allocation
may not indicate actual subsidy payment, it does ease up the cash receipt process. To
illustrate, in FY10, ~Rs1.3bn was due, of which ABG has already received ~Rs750mn.
We estimate ABG to receive ~Rs10bn subsidy in the next six years factoring in order
renegotiations, cancellations, ~Rs4bn subsidy booked to date but not due and further
execution of orders leading to ~Rs6bn subsidy. The 6bn subsidy is based on the
current net orderbook of ~Rs100bn, of which only ~Rs30bn would be eligible in ourview. While the rule is 30%, we believe, effectively it is ~20% of pricing or ~Rs6bn.
We have not factored in continued subsidy for orders received after August 07. Thus,
the subsidy component of revenues will decline from FY11 levels to nil by FY15.
ABG reached peak
margins of ~22%+
during the bull run,
when new build
prices were very
high. From thatphase, we expect
margins to drop to
17% as the company
executes new orders
acquired at lower
prices
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Consolidated financials
Table 9: Profit and Loss statement
(Rs mn, year ending March 31)FY09 FY10 FY11E FY12E FY13E
Net Sales 14,122 18,077 23,200 29,056 39,337of which Ship Building 13,481 16,250 21,285 27,156 37,582
of Which Subsidy 629 1,823 1,916 1,901 1,755of which Wind Mill Towers 5 - - - -of which Ship Repair 9 4 - - -
Other Operating Income 8 - - - -
Total Operating Income 14,130 18,077 23,200 29,056 39,337
Less:Consumption of Raw Materials & Components 8,431 10,163 13,197 17,108 24,127Manufacturing Expenses 1,025 1,494 1,809 2,308 3,194Personal Expenses 296 481 855 1,107 1,217SG&A 639 1,216 1,309 1,588 1,911
Total Operating Expenses 10,391 13,354 17,170 22,111 30,449
EBITDA 3,739 4,722 6,030 6,946 8,888EBITDA ex Subsidy 3,110 2,899 4,115 5,045 7,133
Depreciation & Amortisation 145 387 570 885 945Other Income 139 776 285 322 282
EBIT 3,733 5,112 5,745 6,383 8,225
Less: Gross Interest & Finance Charges 1,232 2,239 2,283 2,406 2,158
Recurring Pre-tax Income 2,501 2,873 3,461 3,977 6,066
Add: Extraordinary Income - 293 - - -Less: Extraordinary Expenses - - - - -
Less: Taxation 789 984 1,038 1,193 1,820
Net Income (Reported) 1,713 2,181 2,423 2,784 4,246
Recurring Net Income 1,713 1,985 2,423 2,784 4,246
Source: Company data, I-Sec Research
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Table 10: Balance sheet
(Rs mn, year ending March 31)FY09 FY10 FY11E FY12E FY13E
ASSETSCurrent Assets, Loans & AdvancesCash & Bank balance 506 284 1,370 1,985 1,027Inventory 12,236 10,661 11,625 14,038 18,322Sundry Debtors 418 720 1,066 1,637 2,265
Loans and Advances 13,473 16,207 18,010 18,866 22,906Operational 8,559 9,018 10,205 11,160 15,445Subsidy 3,021 4,500 5,116 5,017 4,772Others 1,893 2,689 2,689 2,689 2,689
Total Current Assets 26,633 27,872 32,070 36,525 44,520
Current Liabilities & ProvisionsCurrent Liabilities 12,709 9,788 12,907 16,445 22,729Sundry Creditors 12,647 9,700 12,829 16,368 22,652Other Current Liabilities 62 88 78 78 78
Provisions 297 685 685 685 685
Total Current Liabilities and Provisions 13,006 10,472 13,591 17,130 23,414
Net Current Assets 13,627 17,400 18,479 19,395 21,106
InvestmentsStrategic & Group Investments 58 59 59 59Other Marketable Investments 235 6,035 3,695 3,695 2,695Total Investments 235 6,093 3,754 3,754 2,754
Fixed AssetsGross Block 6053 7377 21132 23132 24132Less Accumulated Depreciation 877 1380 1950 2835 3780Net Block 5,176 5,998 19,182 20,297 20,351
Add: Capital Work in Progress 10,076 13,754 2,000 1,000 231Less: Revaluation Reserve 478 463 448 433 418Total Fixed Assets 14,773 19,289 20,734 20,864 20,165
Total Assets 28,636 42,782 42,967 44,013 44,025
LIABILITIES AND SHAREHOLDERS' EQUITY
BorrowingsShort Term Debt & WC Loans 4,944 7,908 6,908 5,908 4,908Secured loans 9,344 14,466 15,466 15,966 13,970Unsecured loans 3,422 6,600 4,600 3,600 2,600
Total Borrowings 17,709 28,974 26,974 25,474 21,479
Deferred Tax Liability 2,220 3,158 3,158 3,158 3,158
Share CapitalPaid up Equity Share Capital 509 509 509 509 509
No. of Shares outstanding (mn) 51 51 51 51 51Face Value per share (Rs) 10 10 10 10 10
Reserves & SurplusShare Premium 2,350 2,350 2,350 2,350 2,350
General & Other Reserve 5,847 7,790 9,975 12,521 16,529
Net Worth 8,707 10,650 12,834 15,380 19,388
Total Liabilities & Shareholders' Equity 28,635 42,782 42,967 44,013 44,025
Source: Company data, I-Sec Research
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Table 11: Cashflow statement
(Rs mn, year ending March 31)FY10 FY11E FY12E FY13E
Cash Flow from Operating ActivitiesReported Net Income 2,181 2,423 2,784 4,246Add:Depreciation & Amortisation 387 570 885 945
Less:
Other Income 776 285 322 282Net Extra-ordinary income 293 - - -Operating Cash Flow before Working Capital change (a) 1,500 2,709 3,347 4,910Changes in Working Capital(Increase) / Decrease in Inventories 1,576 (964) (2,413) (4,285)(Increase) / Decrease in Sundry Debtors (303) (346) (571) (628)(Increase) / Decrease in Operational Loans & Adv. (459) (1,187) (955) (4,285)(Increase) / Decrease in Subsidy (1,479) (616) 99 245Increase / (Decrease) in Sundry Creditors (2,947) 3,129 3,539 6,284Increase / (Decrease) in Other Current Liabili ties 414 (10) - -Working Capital Inflow / (Outflow) (b) (3,199) 7 (300) (2,669)Net Cash flow from Operating Activities (a) + (b) (1,699) 2,715 3,046 2,241Cash Flow from Capital commitments
Purchase of Fixed Assets (4,903) (2,015) (1,015) (247)Purchase of Investments (58) (0) - -Consideration paid for acquisition of undertakingCash Inflow/(outflow) from capital commitments (c) (4,961) (2,016) (1,015) (247)Free Cash flow after capital commitments (6,660) 700 2,031 1,994(a) + (b) + (c)
Cash Flow from Investing ActivitiesPurchase of Marketable Investments (5,800) 2,340 - 1,000(Increase) / Decrease in Other Loans & Advances (796) - - -Consideration received for sale of undertaking/divisionOther Income 776 285 322 282Net Cash flow from Investing Activities (d) (5,820) 2,624 322 1,282
Cash Flow from Financing ActivitiesProceeds from fresh borrowings 11,266 (2,000) (1,500) (3,996)Dividend paid including tax (238) (238) (238) (238)Reserve adjustments 938 - - -Net Cash flow from Financing Activities (e) 11,966 (2,238) (1,738) (4,234)Net Extra-ordinary Income (f) 293 - - -Total Increase / (Decrease) in Cash (222) 1,086 615 (958)(a) + (b) + (c) + (d)+ (e) + (f)
Opening Cash and Bank balance 506 284 1,370 1,985Closing Cash and Bank balance 284 1,370 1,985 1,027Increase/(Decrease) in Cash and Bank balance (222) 1,086 615 (958)
Source: Company data, I-Sec Research
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Table 12: Key ratios
(Year ending March 31)FY09 FY10E FY11E FY12E FY13E
Per Share Data (Rs)Diluted Recurring Earning per share (DEPS) 33.6 39.0 47.6 54.7 83.4Diluted Earnings per share 33.6 42.8 47.6 54.7 83.4Recurring Cash Earnings per share (CEPS) 36.5 46.6 58.8 72.1 102.0Free Cashflow per share (FCPS-post capex) (479.7) (129.7) 13.7 39.9 39.2
Reported Book Value (BV) 171.0 209.1 252.0 302.0 380.8Dividend per share 2.3 4.7 4.7 4.7 4.7
Valuation Ratios (x)Diluted Price Earning Ratio 12.8 11.1 9.1 7.9 5.2Price to Recurring Cash Earnings per share 11.8 9.3 7.3 6.0 4.2Price to Book Value 2.5 2.1 1.7 1.4 1.1Price to Sales Ratio 1.6 1.2 0.9 0.8 0.6EV / EBITDA 12.5 15.4 10.7 8.3 5.6EV / Total Operating Income 2.8 2.5 1.9 1.4 1.0EV / Operating Free Cash Flow (Pre-Capex) (4.1) (26.3) 16.2 13.7 17.7EV / Net Operating Free Cash Flow (Post-Capex) (1.6) (6.8) 62.7 20.6 19.9Dividend Yield (%) 0.5 1.1 1.1 1.1 1.1Growth Ratios (% YoY)Diluted Recurring EPS Growth - 15.9 22.1 14.9 52.5Diluted Recurring CEPS Growth - 27.7 26.2 22.6 41.5
Total Operating Income Growth - 27.9 28.3 25.2 35.4EBITDA Growth - 26.3 27.7 15.2 28.0Recurring Net Income Growth - 15.9 22.1 14.9 52.5Operating Ratios (%)EBITDA Margins 23.0 17.8 19.3 18.6 19.0EBIT Margins 26.4 28.3 24.8 22.0 20.9Recurring Pre-tax Income Margins 17.5 15.2 14.7 13.5 15.3Recurring Net Income Margins 12.0 10.5 10.3 9.5 10.7Employee cost / Revenue 2.1 2.7 3.7 3.8 3.1Operating expenses / Revenue 4.5 6.7 5.6 5.5 4.9Other Income / Pre-tax Income 5.6 27.0 8.2 8.1 4.6Other Operating Income / EBITDA 0.2 - - - -Effective Tax Rate 31.5 34.2 30.0 30.0 30.0Return / Profitability Ratios (%)
Return on Capital Employed (RoCE)-Overall 17.9 9.7 9.4 10.3 13.1Return on Invested Capital (RoIC) 26.6 13.4 14.3 16.6 20.9Return on Net Worth (RoNW) 39.3 20.5 20.6 19.7 24.4Dividend Payout Ratio 7.0 12.0 9.8 8.6 5.6Solvency Ratios / Liquidity Ratios (%)Debt Equity Ratio (D/E) 2.3 3.0 2.3 1.9 1.3Long Term Debt / Total Debt 75.2 75.4 77.1 79.4 80.1Net Working Capital / Total Assets 45.8 40.0 39.8 39.6 45.6Interest Coverage Ratio-based on EBIT 3.0 2.3 2.5 2.7 3.8Debt Servicing Capacity Ratio (DSCR) 2.5 2.1 2.3 2.5 3.4Current Ratio 1.9 2.4 2.2 2.0 1.8Cash and cash equivalents / Total Assets 1.8 0.7 3.2 4.5 2.3Tur