Bharati Shipyard Ltd RECOMMENDATION: BUY
Price: Rs. 595 Target Price: Rs. 771
Bharati Shipyard Ltd (BSL) is a value & growth play in the shipbuilding industry and offers good investment value. BSL enjoys strong shipbuilding capabilities in special category ships like anchor handling tugs (AHTS), offshore supply vehicles (OSVs) and rigs which require superior engineering and delivery skills, developed by it over a time. This is reflected by the strong orderbook position of Rs.40bn which is 10x FY07A sales. We believe that BSL with a strong order book position and skilled expertise in the offshore shipbuilding business, will report a top line and bottom line CAGR growth of 53% and 52% respectively for a period FY07-FY09E. BSL trades at an attractive valuation of 6x EV/EBITDA and 11x on FY09E earnings. We recommend a BUY with a Target Price of Rs 771.
Strong orderbook of Rs.40bn to drive top line growth
BSL is a second largest private shipbuilding player in Indian shipbuilding sector. BSL is currently sitting on a strong order book of Rs.40bn which is 10x of FY07 revenue. About 60% of BSL’s orderbook is titled towards offshore segment like AHTS, OSVs and oil drilling rig which requires superior quality engineering and delivery skills sets. BSL’s existing client list includes some eminent names like Reliance Industries Ltd, GE Shipping, Bombay Port Trust, MK Shipping, Germany, Qatar Shipping Co, Qatar, Bourbon and others. BSL’s strong orderbook position of Rs.40bn is spread over the period FY08E-FY11E, which provides strong earnings visibility and offers us comfort while recommending the stock. BSL has also received a rig order in FY07A worth Rs7.5bn from Great Offshore Ltd. As offshore capex has been on the rise, we expect BSL’s foray into this segment to offer a huge potential market and considering its engineering and delivery expertise, BSL is likely to get more orders in this segment in near future.
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