Started in 1934, Garden Reach Shipbuilders & Engineers Limited, is a Mini Ratna-Category I Company by the Department of Public Enterprises under the Ministry of Heavy Industries and Public Enterprises, Government of India. It is a shipbuilding company in India under the administrative control of the MoD and primarily adhere to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. In addition to its ship and warship building capabilities, they are engaged in engineering and engine production activities. The shipbuilding division contributes a significant majority of company's revenue from operations. They have derived 94.14%, 90.13%, 92.19% and 94.76% of its gross revenue from operations in FY18, FY17, FY16 and FY15 respectively from the shipbuilding division. Company currently offers products in the following core verticals: (1) Shipbuilding; (2) Engineering; and (3) Engine production.1. Shipbuilding division consist of the construction of vessels for clients engaged in the defence sector shipping industry. Vessels built by them include frigates, anti-submarine warfare corvette, missile corvette, landing ship tank, landing craft utility, survey vessel, fleet replenishment tanker, fast patrol vessel, offshore patrol vessel, inshore patrol vessel, WJ-FAC, hover craft and fast interceptor boat.2. Engineering division develops and manufactures portable steel bridges, suspension type pre-fabricated steel bridges, marine pumps, rail-less helicopter traversing systems, boat davits, anchors, mooring and dock capstans, anchor windlass and winches. 3. Engine production division undertakes assembly, testing, servicing and repair of various models of diesel engines used for marine propulsion and power generation through collaboration with the MTU of Germany. Company produces the following products through their engine division MTU 396-04, 4000, 1163, 538, and 183 series diesel engines, engine components, and accessories. Over the years, GRSEL has established capabilities for in-house design and shipbuilding and has made considerable contributions to the indigenous warship construction program of the country. In last five (5) decades, they have built and delivered ships ranging from small to large and advanced vessels including frigates, anti-submarine warfare corvettes, missile corvettes, landing ship tanks, landing craft utilities, survey vessels, fleet replenishment tankers, fast patrol vessels, offshore patrol vessels, inshore patrol vessels, WJ-FAC, hover crafts and fast interceptor boats to the Indian Navy, Indian Coast Guard, MHA and Governments of other countries. Presently, GRSEL has three (3) separate facilities for shipbuilding, all of which are located in close vicinity of each other at Kolkata, India. They build their ships at the Main Works Unit and the Rajabagan Dockyard. Their third facility, the FOJ Unit is primarily used for fitting out and repair of ships. Their DEP unit is engaged in the testing and overhauling of marine propulsion engines and assembly of semi-knocked down units of diesel engines. Over the years, GRSEL has been credited with many firsts in the Indian shipbuilding industry. For instance, they are the first Indian shipyard to integrate carbon composite superstructure with steel hull for the construction of their third ASW Corvette for the Indian Navy, which resulted in a reduction in weight and increase in stability of the ships. In 2000, they became the first and the only Indian shipyard to build and subsequently deliver a fleet tanker to the Indian Navy and to build and subsequently deliver a hovercraft to the Indian Coast Guard among others. As of July 31, 2018, GRSEL employed a total workforce of 2,155 full-time employees, which comprised of 473 officers, 141 supervisors, 104 office assistants and 1437 operatives in various departments. All their employees are based at various facilities in Kolkata, Ranchi, Delhi, Mumbai and Visakhapatnam. As of July 31, 2018, company's order book for all the product categories was Rs 2,03,136.10 million, of which their shipbuilding order book consisted orders of fourteen (13) vessels with an aggregate outstanding revenue value of Rs 2,00,294.20 million. In addition to their firm order book, as of the date of this DRHP, they have also been adjudged the lowest bidder for four (4) Survey Vessels (Large) and eight (8) Anti Submarine Warfare Shallow Water Craft (ASW SWC) from MoD and one Ocean Going Passenger and Cargo Ferry Vessel, which presently does not form a part of the order book as letters of award have not been issued to them. As per financial performance, GRSEL has posted total income/net profits of Rs. 1615.35 cr. / Rs. 116.57 cr. (FY14), Rs. 1629.44 cr. / Rs. 45.80 cr. (FY15), Rs. 1856.06 cr. / Rs. 159.64 cr. (FY16), Rs. 1146.31 cr. / Rs. 11.69 cr. (FY17) and Rs. 1525.75 cr. / Rs. 94.36 cr. (FY18). So company has posted zig-zag performance over the years. As per company setback in FY17 was due to up gradation of its facility to adopt latest technology. Company has posted an average EPS of Rs. 6.10 and average RoNW of 7.01% for last three fiscals. Issue is priced at a P/BV of 1.33 as per NAV of 88.69 on 31.03.18. If we attribute latest earnings of FY18 on fully diluted equity post issue, then asking price is at a P/E of around 16. As per RHP, there is no listed peers of company. Issue is fully priced as per latest earnings, but the big order book of company, gives hope for future growth. On BRLM's front, two merchant bankers associated with this issue and have handled 15 public issues in the past three years and out of those 4 issues opened below their offer price on listing dates. As per financials, company's financials are zig-zag, RoNW is 7.01% for last three fiscals and issue is priced at P/E of around 16 as per latest earnings. Company has very strong order book, which will give business for at least 5 years, so it has good scope for future growth as Government is also focused on enhancing India's defence. But issue is fully priced and other companies of defence sector are also trading at same valuations or below. So we give NEUTRAL rating to this IPO.
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