September 24, 2020


By Roy

This September month is increasingly getting into a month for IPOs. After Happiest minds, Route Mobile, CAMS, Chemcon and Angel Broking, another great company is up for listing. The Company under discussion is Mazagaon Dock Shipbuilders Ltd. Let us discuss the Mazagaon Dock Shipbuilders IPO prospects, company details, GMP and listing gain probabilities.

Overview of The Company

Mazagon Dock Shipbuilders is a defence public sector undertaking shipyard, incorporated on February 26, 1934, with a maximum shipbuilding and submarine capacity of 40,000 DWT (Dead Weight Tonnage), 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 was conferred with the ‘Mini-ratna-I’ status in 2006 and is India’s only shipyard to have built destroyers and conventional submarines for the Indian Navy.

Since 1960, MDL has built a total of 795 vessels including 25 warships, from advanced destroyers to missile boats and three submarines. MDL had 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.

A few highlights in its shipbuilding are

  • India’s only shipyard to have built destroyers and conventional submarines for the Indian Navy.
  • One of the initial shipyards to manufacture Corvettes (Veer and Khukri Class) in India.
  • It is also one of the shipbuilders for P17-A project for building next-generation guided-missile stealth frigates through collaboration with Fincantieri, Italy.
  • Executing orders for 5 scorpene submarines through collaboration with DCNS, France.
  • It has a capacity to build warships, submarines, merchant ships upto 40,000 DWT.
  • As per the Ministry of Shipping, no ship repair work has been undertaken by MDL in 2016. However, it has undertaken ship repair activity in the past.
  • For outfitting work, the company has several workshops with sophisticated equipment and machines specific to hull fabrication and ship construction.

The shipbuilding & submarine and heavy engineering divisions are both ISO 9001:2015 certified. Over the last 18 Fiscals, the total number of orders for vessels received and delivered by the company is set out below:

Division Order Received Order Delivered
Shipbuilding 15 27
Submarine & Heavy Engineering 10 5

As of July 31, 2020, MDL had employed 3,939 permanent employees, comprising of 1,033 executives, 305 staff (including 48 sub staff) and 2,601 operative.

Industry Overview

The global shipbuilding industry comprises construction and modification of ships, offshore vessels and rigs. The broad categories of ships built are:

  • Passenger carriers
  • Offshore vessels
  • Dry bulk carriers
  • Tankers (Inclusive of LNG carriers)
  • Container ships
  • Defence vessels

On average, it takes 15-18 months to build a conventional vessel, i.e., a bulk carrier, tanker or container ship, and 28-32 months to construct a ‘liquefied natural gas (LNG)’ vessel and an ‘offshore rig and support’ vessel.

Over the past few decades, the shipbuilding industry has shifted from Europe to Asia, due to favourable factors such as cheap labour, competitive manufacturing and steel-making sectors, as well as state support.

  • Typically, a shipyard requires a working capital of around 25-35% of the cost of the ship during the construction period. Moreover, the interest rates offered to shipbuilding yards in these countries are quite low.
  • At the time of sale of ships, the Chinese and South Korean governments provide discounts/subsidies of 5-10% and 15-20%, respectively, thus helping players bid at lower prices against global competition.

In 2015, China, South Korea and Japan together accounted for 91% of global deliveries, with China commanding the largest share of 36%, followed by South Korea and Japan at 34% and 21% respectively.

The Indian shipbuilding industry can be divided into the following segments:

Public sector shipyards: India’s major shipyards have historically been from the public sector. They primarily build merchant-class ships and naval vessels. The Indian shipbuilding industry comprises eight public sector shipyards out of which four naval shipyards come under the purview of India’s Ministry of Defence, namely Hindustan Shipyard Ltd, Mazagon Dock Shipbuilders Ltd, Goa Shipyard Ltd and Garden Reach Shipbuilders & Engineers Ltd.

Private shipyards: The three listed private-sector shipbuilding companies are Bharati Defence & Infrastructure Ltd (BDIL), ABG Shipyard Ltd and Reliance Defence and Engineering Ltd (RDEL), formerly known as Pipavav Defence and Offshore Engineering Company Limited (PDOECL). Additionally, Larsen & Toubro Ltd is another major private sector player. In addition, there are a number of smaller private shipyards building smaller ships and vessels, including coastal vessels, barges, tugs, patrol ships and fishing ships.

The government has taken some key initiatives to develop and promote the country’s shipbuilding industry. In December 2015, the Cabinet approved the new shipbuilding policy, which aims to provide financial assistance to shipbuilders and grant infrastructure status for the industry. The government has set aside Rs 40 billion to implement the scheme over 10 years.

Issue Snapshot:

Mazagon Dock Shipbuilders Limited 
Issue PeriodBid/Offer Opens On:  Tuesday, September 29, 2020
Bid/Offer Closes On:  Thursday, October 01, 2020
Issue DetailsOffer for Sale of 3,05,99,017 Equity Shares (The offer shall constitute 15.17% of the post-offer paid-up equity share capital)
Issue Size (₹ Cr)₹ 413 - 444 Cr
Price Band₹ 135 – 145 of Face Value ₹ 10
Bid Lot103 Shares and in multiple thereof
Employee Reservation3,45,517 Equity Shares
Employee Discount₹ 10
Issue Structure:
QIB50% of the Net offer ( 1,51,26,750 Equity Shares ) (₹ 204~ - ₹ 219^ Cr)
NIB15% of the Net Offer ( 45,38,025 Equity Shares ) (₹ 61~- ₹ 66^ Cr)
Retail35% of the net offer ( 1,05,88,725 Equity Shares ) (₹ 143~ - ₹ 154^ Cr)
~ Lower price band and ^ Upper Price Band
BRLMsAxis Capital, Yes Securities, Edelweiss Financial, IDFC Securities, JM Financial
RegistrarAlankit Assignments Limited
Note: Application made using third party UPI or ASBA Bank A/c are liable to be rejected.

Post issue implied Market Cap: Rs. 2723 crore – 2925 crore.

Indicative Timetable:

Finalisation of Basis of Allotment07-10-2020
Refund/Unblocking of ASBA08-10-2020
Credit of Shares in Demat09-10-2020
Listing on BSE and NSE12-10-2020

Issue Breakup:

CategoryNo of sharesAmount in Lower Price Range (Rs. Crore)Amount in Higher Price Range (Rs. Crore)% of Issue

Shareholding Structure:

CategoryPre IssuePost Issue
Promoter & Promoter Group100%0%

Financials Snapshot

(in Rs. Crore)

Share Capital*201.69224.10224.10249.00
Revenue From Operation4977.654613.964470.363519.08
Other Income557.66590.72557.27755.78
Total Income5535.315204.685027.634274.86
Revenew Growth7.88%
EBIDTA as Stated825.63851.52711.97881.52
EBIDTA %16.59%
Profit Before Tax735.37778.12650.41830.55
Profit After Tax477.06532.47496.17598.26
PAT% to Revenue9.58%
EPS (Rs)21.3623.7520.6124.03
Book Value (Rs)152.17143.55126.46120.09
Dividend %^107.45%

*Share Capital in FY20 reduced due to share buyback, ^ FY17 dividend was on Rs. 100 Face value

Revenue Breakup:

(in Rs. Crore)

Submarine and Heavy Engineering1493.542138.3423572360.3
Other Operation7.416.272.984.17
Total Revenue from operation4977.654613.964470.363519.08

Comparison with listed Industry Peers

Name of the Company Face ValueEPS (Basic)Book ValuePERoNW%
Mazagon Dock ShipbuildersConsolidated1021.36152.176.79^15.54%
Coachin ShipyardConsolidated1048.05283.027.616.98%
Reliance Naval and EngineeringConsolidated10-23.87-165.1NANA
Garden Reach ShipbuildersUnconsolidated1014.2790.8114.917.01%

^PE estimated on higher price band, Rest PE calculated on August 27, 2020 closing price. Reliance Naval reported a loss. So, PE is Not Applicable.

The company is having Rs. 54,074 crore order book as on 31st March 2020.

Competitive Strength

  1. Only public sector defence shipyard constructing conventional submarines;
  2. World-class infrastructure capable of serving the requirements of the Ministry of Defence;
  3. Location of the facilities promote closer association with the vendors and customers;
  4. Increase in indigenisation of the vessels and implementation of the “Make in India” campaign;
  5. Established track record with strong financial position and strong Order Book;
  6. Experienced board and senior management team and skillfully trained workforce.

Key Business Strategies

  1. Export of the products to the international markets
  2. Focus on ship repair
  3. Augmentation of infrastructure and enhancing the manufacturing capacity

Risk Factors:

  1. The continuing effect of the COVID-19 pandemic on the business and operations is highly uncertain and cannot be predicted.
  2. The Company predominantly depend on the MoD for defence orders and have mostly been awarded such orders on a nomination basis by the MoD for use by the Indian Navy. There is no assurance that future defence orders will be awarded to us by the MoD. Further, recent changes in the policy framework governing defence procurement and manufacturing in India may result in Company no longer being given such orders which may have an adverse effect on our business growth, financial condition and results of operations.
  3. Company’s revenues from the MoD contracts including the submarine refit contracts are subject to the satisfaction of certain milestones and are subject to termination. Inability to fund such contracts at the time of inception or any termination of any of contracts with the MoD could have a material adverse effect on the financial condition and results of operations.
  4. Company’s entire business operations are based out of a single yard at Mumbai. The loss of, destruction, or shutdown of, our operations at our shipyard in Mumbai will have a material adverse effect on our business, financial condition and results of operations

GMP of Mazagon Dock Shipbuilders and Overall Verdict

It is a dominant player in shipbuilding space and has a strong order book. As on 24 Sep, Grey Market Premium (GMP) is around 35-40%. GMP is affected by various market factors. The market corrected sharply on 22-24th Sep. That is why GMP is on the lower range. I think Mazagon Dock Shipbuilders can be subscribed for listing gain. Not a long-term investment pick for me, as the market hardly considers PSU companies as value investments.

Update on 27.09.2020, Time – 20:00– As per the latest Updates from different brokers, GMP of Mazagon Dock is at around 90-100%. So, we can expect a bumper response.

Source – RHP