Comparing Rates, Pipavav Shipyard – World’s Second Largest Dry Dock

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Latest results

(in Cr.)
Sep-11
Jun-11
FY10-11
Revenue
449.83
338.34
867.61
Net Profit
9.41
7.94
39.77
EPS
0.14
0.12
0.6
Cash EPS
0.58
0.39
1.33
OPM %
23.96
21.64
24.88
NPM %
2.09
2.35
4.58

Share price movement

 
 
 
Weekly H/L
86.55
78.65
Monthly H/L
87.9
78.65
52 Weeks H/L
95.5
61.2
 
( 11 Nov 10 )
( 22 Aug 11 )
Delivery / Var+ELM %
66.5
12.67
Ex Date
 
 
Indian Navy Destroyer INS Ranjit
Indian Navy Destroyer INS Ranjit | Source

Pipav Shipyard


Q2 results are good

Pipavav Defence and Offshore Engineering, formerly called as Pipavav Shipyard has posted a good results for the quarter ended 30.09.11 compared to the quarter ended 30.06.11. Revenue has increased from R.338.34 crore to Rs.449.83 crore. Revenue for the whole year 2010-11 was at Rs.867.61 crore. In other words, the company has achieved nearly 50% of the revenue it secured for last year in the current quarter itself. Net profit increased from Rs.7.94 crore to Rs.9.41 crore. Net profit for the whole year 2010-11 was at Rs.39.77 crore. Operating profit margin increased from 21.64% to 23.96%. Net profit margin declined slightly from 2.35% to 2.09%. The company is operating in the defence sector. The shares of Pipavav are traded in the Indian stock markets at Rs.82 now. The highest price recorded by the shares of Pipavav in the last one year is at Rs.95.50 (11.11.10) and the lowest price is at Rs.61.20 (22.08.11).

Defence ministry gives a clean chit to Pipavav

The defence ministry has absolved Mazagon Dock, the State-owned company of any wrongdoing in selecting Pipavav as its partner for a joint venture. Rivals of Pipavav alleged irregularities in the joint venture award and so the project was put on hold. Pipavav is a Nikhil Gandhi owned company. The rivals of the company include L&T, India’s largest infrastructure company and ABG Shipyard, India’s largest private shipyard. The rivals alleged that Mazagon Dock had not adopted transparency in its selection procedures. Their allegations include setting of no deadlines for submitting of applications and non-disclosure in evaluation criteria.

Swelled order book

Pipavav now owns 50% stake in Mazagon Dock Pipavav. Now that the defence ministry has absolved Pipavav of any irregularities in securing the node for joint venture, the joint venture is likely to start its operations soon. Earlier, the income tax department conducted search on the company’s Mumbai and Gujarat premises. Mazagon Dock had a swelled order book worth over Rs. one lakh crore. In order to execute these pending projects fast, the company floated a joint venture. Nikhil Gandhi, Chairman of Pipavav, stated that Mazagon chose his company for the infrastructure that it could offer and particularly the dry dock.

Delay in delivering ships

There has been considerable delay for the first ship to arrive at Pipavav Shipyard. The company attributes the delay to delay in obtaining visa extension of the Chinese workers. There are allegations that the company has not delivered even a single ship so far. But the company refutes these allegations by saying that it delivered two Panamax ships on June 12. ONGC, India’s largest oil explorer, has placed orders for 12 offshore supply vessels. There has been a delay in handing over these vessels to ONGC. The company says that ONGC wanted to incorporate some changes in the equipment and hence the delay.

Pipavav will produce submarines and warships for Indian Navy

But the whole controversy should have been avoided. The joint venture of Mazagon Dock with Pipavav assumes vital importance because the joint venture company is going to build warships for the Indian Navy. With India having hostile nations like China and Pakistan around it, any defence project should be above board and should not invite controversies. Pipavav is the first company to get orders for building warships for the defence operations. The price of each warship ranges from $100 million to $6 billion. As pointed out earlier, Mazagon has an order book of over Rs.1 lakh crore and Pipavav has an order book worth over $1.5 billion. Pipavav is licensed to produce five warships every year. But the company, because of its modular shipyard, can enhance this to two dozen warships every year. Pipavav has a partnership with six of the top ten companies in the world in the production of submarines and warships.

Pipavav has modern shipyard with all facilities

India has a large demand supply gap in warships. Indian Navy gives out orders for $25-$30 billion every year but execution is done only for around $1 billion due to size and infrastructure constraints. The joint venture will utilise the facilities available in both Pipavav Shipyard and Mazagon Shipyard in order to clear the mounting project arrears of Mazagon. The joint venture company will find it busy in the next fifteen years to execute the projects on hand. Out of the two shipyards, Pipavav Shipyard is better compared to Mazagon Shipyard because of the facilities available there. These facilities make it possible for the production of futuristic warships. Moreover, Pipavav is investing $1 billion in order to enhance the facilities in its shipyard. Out of this, $750 million has already been invested and the company has reached financial closure for the remaining $250 million investment. The company’s investment will convert is shipyard from wet dock to dry dock. The company has also recruited lot of people to swell its employee strength from 650 last year to over 3000 now.

India is one of the few manufacturers of submarines

In the world, only three countries other than India have the capability to manufacture submarines. Manufacture of submarines and warships require lots of modern facilities with latest technology. Pipavav’s shipyard has more facilities than all other Indian shipyards put together. As regards manufacture of submarines in India, only Pipavav Shipyard and Mazagon Shipyard have the facilities. Pipavav Shipyard is the second largest dry dock in the world. Sea King Infrastructure Ltd, the holding company of Pipavav wants to dilute 26% of stake in Pipavav and is negotiating with interested parties. Rakesh Jhunjhunwala, the billionaire investor, has shown interest in Pipavav. He picked up a minority stake in the company at a price of Rs.78 per share.

Interest in reviving Everonn Education

Nikhil Gandhi is looking forward to further consolidate his holding in the scam tainted Chennai-based company Everonn Education. SKIL acquired 21% stake in Everonn last year at an investment cost of Rs.208 crore. Pipavav is scouting for overseas buys that cater to oil, gas and defence sectors. Pipavav made a public offer (IPO) in September 2009 at a price of Rs.58 per share and raised around Rs.500 crore.

Invest for long term

The shares of Pipavav at the current price level may be purchased only for long term investment because of the following reasons:

  • Building of warships and submarines involve long term activity
  • The company is the first private sector player to secure a defence contract for building warships. This is a prestigious contract secured against tough competition and controversies with allegations.
  • The company’s shipyard has modern facilities with latest technology.
  • The company’s shipyard is world’s number two in dry dock
  • The company has a healthy order book
  • The defence ministry has certified that there were no irregularities in awarding the joint venture project to the company. The defence minister A K Antony is one of the most honest politicians in India and his words carry trust.

One can ignore the controversies and allegations involved in the joint venture contract as protests by the parties that have lost big deal. Nikhil Gandhi’s interest in the scam-tainted Everonn Education also comes in the same category. Nobody accuses that Nikhil Gandhi is involved in the scam. Not even his detractors have done so. There is nothing wrong in taking over ad reviving a scam-tainted company if it is perceived that the company still has lot of value. Mahindra Group’s taking over of the scam-tainted Satyam Computers is a classic example.

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