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India’s first ever indigenous aircraft carrier, INS Vikrant, is scheduled to be commissioned in August 2022. This has got us thinking, who really is behind this great feat? The answer is Cochin Shipyard. Cochin Shipyard was incorporated in 1972 as a Government of India company, and has gone on to achieve Miniratna status.
With 73% of stake with the Indian government, Cochin Shipyard has become a leader in the Indian Shipbuilding industry. As of March 2021, Cochin Shipyard has built and delivered 16 Large Vessels, 35 Offshore Support Vessels, 83 Small & Medium Vessels and 20 Defense Vessels. Cochin Shipyard has exported over 47 vessels to clients from Norway, Netherlands, Cyprus, USA, Germany, Denmark, Saudi Arabia and UAE.
In the local market, the company has sold vessels to the Indian Navy, the Indian Cost Guard, the Shipping Corporation of India, various Port Trusts, and many others as well. The company has 3 shipyard facilities and 4 ship repair facilities. Shipbuilding accounts for 85% of the company’s revenue, with the remaining coming from ship repair. Company has an order book of around Rs.11,700 crores, with further contracts for Next Generation Missile Vessels of Rs. 10,000 cr.
Cochin Shipyard, being the 1st shipbuilder to design and build an indigenous aircraft carrier in India, highlights the company’s technological and design capabilities but also its project sourcing capabilities, as big differentiators.
India’s shipbuilding industry is very small compared to the global market, contributing less than 1% to the world output. The Government of India has formed Maritime India Vision, or MIV 2030, to push India forward in the global maritime industry. This MIV 2030 plan envisions investments of Rs.3.5 lakh crore to be made in the sector across ports, shipping, and inland waterways’ categories.
The defense shipbuilding industry is expected to remain driven by the evolving requirements of the Indian Navy and other government agencies. This is also expected to accelerate in the future, with the push to develop the defence sector in India and become Atmanirbhar for all our defence requirements.
So, what is our view on company valuation?
Cochin Shipyard did its IPO in August 2017 at an issue price of 432 rupees with oversubscription of about 76 times. However, the current market price is at around 35% discount to the IPO price meaning that the company has underperformed in the market. Company trades at P/E (TTM) ratio of 7x vs Mazagaon Dock of 7x and Garden Reach of 13x. Stock looks interesting for long term and should be evaluated by investors.
As for the risks to this analysis, since the Indian Government is the biggest customer for the company, it is vulnerable to political and economic risks that arise from policy and regime changes.
So, would you invest in Cochin Shipyard? Share your views in the comments section and like the video if you liked our analysis.
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