Mazagon Dock Shipbuilders Limited, started in 1934, is a defence public sector undertaking shipyard under the Department of Defence Production, MoD with a maximum shipbuilding and submarine capacity of 40,000 DWT (as CRISIL Report), engaged in the construction and repair of warships and submarines for the MoD for use by the Indian Navy and other vessels for commercial clients. The company conferred with the 'Mini-ratna-I' status in 2006, by the DPE. They are India's only shipyard to have built destroyers and conventional submarines for the Indian Navy. They are also one of the initial shipyards to manufacture Corvettes (Veer and Khukri Class) in India. The business divisions in which company operates are (i) shipbuilding and (ii) submarine and heavy engineering. The shipbuilding division includes the building and repair of naval ships. They are currently building four P-15 B destroyers and four P-17A stealth frigates and undertaking repair and refit of a ship for the MoD for use by the Indian Navy. The submarine and heavy engineering division includes building, repair and refits of diesel electric submarines. They are currently building / in the process of delivering four Scorpene class submarines under a transfer of technology agreement with Naval Group as well as one medium refit and life certification of a submarine for the MoD for use by the Indian Navy. Since 1960, they have built a total of 795 vessels including 25 warships, from advanced destroyers to missile boats and three submarines. (as per CRISIL Report). They have also delivered cargo ships, passenger ships, supply vessels, multipurpose support vessels, water tankers, tugs, dredgers, fishing trawlers, barges and border outposts for various customers in India as well as abroad. (as per CRISIL Report). Some of the vessels built and delivered by the Company in the past include, six Leander class frigates, three Godavari class frigates, three corvettes, four missile boats, six destroyers, four submarines and three Shivalik class frigates for the MoD for use by the Indian Navy and constructed and delivered seven offshore patrol vessels to the Indian Coast Guard. They have fabricated and delivered jackets, main decks of wellhead platforms, process platforms and jack up rigs, etc. (Source: CRISIL Report). The shipyard of MDSL is strategically located on the west coast of India, on the sea route connecting Europe, West Asia and the Pacific Rim, a busy international maritime route. They are headquartered in Mumbai which is also the headquarters of the Western Naval Command of the Indian Navy. Company is also exploring the possibilities of developing a greenfield shipyard at Nhava, Navi Mumbai with a shiplift, wet basin, workshops, stores and buildings and a ship repair facility spread over an area of 37 acres. Further, as of July 31, 2020, the Order Book for shipbuilding and submarines and heavy engineering was Rs 54,074 Cr comprising of three major shipbuilding projects and two submarine projects. So with respect to recent revenues, they have around 7-10 years of projects. On financial performance front, MDSL has posted turnover/net profits of Rs. 4274.86 cr. / Rs. 597.74 cr. (FY17), Rs. 5027.63 cr. / Rs. 456.15 cr. (FY18), Rs. 5204.67 cr. / Rs. 513.08 cr. (FY19) and Rs. 5535.31 cr. / Rs. 458.01 cr. (FY20). Company has not provided Q1 results. As per results, company has posted above average growth over last couple of years. Company has posted an average EPS of Rs. 22.03 and average RoNW of 16.21% for last three fiscals. Issue is priced at a P/BV of 0.95. If we attribute latest earnings of FY20 on fully diluted equity post issue, then asking price is at a P/E of around 6.79. Comparison between peers is shown in above table. On BRLM's front, four BRLMs are associated with this IPO, and have handled around 31 IPOs in last three fiscals, and from last 10 IPOs, 4 opened below issue price and remaining opened above issue price on the day of listing. As of now, from last 10 IPOs, 3 are trading below issue price and remaining above issue price. ( As on 22.09.2020 ) As per financials, company's growth is good, RoNW is 16% for last three fiscals, and issue is priced at P/E of around 7 as per FY20. So Mazagon Doc IPO is very reasonably priced and one may expect at least 5-7% dividend yields. Order book is very strong (for next 7-10 years) and if company can do execution as per schedule, then there will be good growth. So we give SUBSCRIBE rating to this IPO.
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