Stock Review: ABG Shipyard

 

A strong order book, improving balance sheet and steady business outlook make ABG Shipyard's sailing sustainable in the near future. The company has recently won two navy contracts, acquired a ship-repair company and is dealing primarily with clients unaffected by the shipping sector slowdown.

ABG Shipyard, the country's largest private shipyard, has a healthy order book of . 15,000 crore which is nearly seven times the FY11 revenues of . 2,136 crore. This includes an order recently received from the Indian Navy to build two naval cadet-training ships worth . 970 crore. Current orders are to be executed over the next five years, which gives it a better revenue visibility.

During the financial year 2011, the company reported a growth of 15% in sales and 5.2% in net profits from ordinary operations on a consolidated basis. The company has set an aggressive 30% revenue growth target for FY12 which seems achievable assuming the projects are executed on time.

The company reduced its debt from . 2,897 crore to . 2,542 crore in FY11, and plans to reduce by another . 400 crore in FY12. The debt-toequity ratio currently stands at 1.9:1. The company paid . 145.8 crore towards interest cost in FY11, which was 29% of its PBDIT.

ABG Shipyard holds a 60% stake in Goa-based Western India Shipyard, which is the largest private rig and ship repair firm in the country. Western India Shipyard has healthy operating margins with an average of 35% over previous four quarters. There is a growing demand for ship repair services in the country since most of the merchant ships from India go for repairs in Singapore and Dubai.
The current dampened outlook of the shipping industry is mainly in the large-sized carriers segment, where an oversupply situation has arisen. As a result, ABG's primary customers of handy-size and handy-max ships are relatively unaffected in the turmoil compared to the large ship owners. This ensures that ABG's order book remains healthy and growing. The company is also into construction of jack-up rigs used in offshore exploration and drilling activities.

The company is currently trading at a P/E of 10.14 whereas its peers Bharati Shipyard and Pipavav Shipyard are trading at a P/E of 3.29 and 126.33, respectively.