Garden Reach Shipbuilders IPO – Should you avoid?

Garden Reach Shipbuilders IPO Review


Garden Reach Shipbuilders IPO would open for subscription on 24th September, 2018. Garden Reach Shipbuilders is a Minirathna Category-I government company under the Ministry of Defence. Garden Reach Shipbuilders is a ship building company in India. Company revenues are fluctuating and its revenues have not grown much in the last 4 years. It earned profits of 5.7% for FY2018. What are positive factors in this Garden Reach Shipbuilders & Engineers Limited IPO? What are the hidden factors in Garden Reach Shipbuilders IPO? Should you invest in Garden Reach Shipbuilders IPO? Let me provide some insights about this IPO and do the review.

Also Read: Should you invest in Minirathna IRCON International Limited IPO?

About Garden Reach Shipbuilders & Engineers Limited


They are 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. As a part of its engineering division, they manufacture deck machinery items, pre-fabricated portable steel bridges and marine pumps. Its ship building division contributes a significant majority of its revenue from operations. They have derived 94.14%, 90.13%, 92.19% and 94.76% of its gross revenue from operations in fiscal 2018, 2017, 2016 and 2015 respectively from its shipbuilding division.

Garden Reach Shipbuilders IPO Issue details


IPO opening date: 24-Sep-2018

IPO closure date: 26-Sep-2018

Face Value: Rs 10 per share

Issue price band: Rs 115 to Rs 118 per share

Issue size: 344 Crores

IPO Lot size: 120 shares and 120 shares, there-off

Minimum investment: Rs 14,160 on higher price band

Leading Managers: IDBI Capital and Yes Securities

Listing: BSE / NSE

Download Garden Reach Shipbuilders IPO RHP Prospectus at this link.

Objects of the Garden Reach Shipbuilders IPO issue


The Objects of the issue are:

a) Offer for Sale: The Promoter Selling Shareholder shall carry out divestment of 29.21 Mn shares. The company would not receive any proceeds from this offer.

b) To achieve the listing benefits on the stock exchanges.

Company Promoters


The Promoter is the President of India acting through the Ministry of Defence.

Company Financials (Reinstated)


1) The company generated revenue of Rs 1,629.4 Crores for the year ended Mar-15 and Rs 1,525.2 Crores for the year ended Mar-18.

2) The company posted a profit of Rs 51.7 Crores for the year ended Mar-15 and profit of Rs 86.8 Crores for the year ended Mar-18.

3) Its EPS for FY18 was Rs 7.14 and 3 years average EPS is Rs 6.

Garden Reach Shipbuilders IPO Financials

What are the key strengths of Garden Reach Shipbuilders & Engineers Limited?


Here are the key strengths of the company.

1) Company believes they would benefit from the strengths listed below that together differentiate us from its competitors

2) Modern Manufacturing Platform and Integrated Shipbuilding Facilities to deliver quality products

3) They provide End-to-End Solutions

4) Strong and Established Relationships with Indian Navy and Indian Coast Guard

5) Strong Order Book

6) Make in India Initiative

7) Business Diversification

8) Experienced Workforce

What are the Strategies of Garden Reach Shipbuilders Ltd?


There are no strategies listed by them.

What is the Grey Market Price (GMP) of Garden Reach Shipbuilders?


As of the publication of this article, Garden Reach Shipbuilders & Engineers IPO Grey Market Premium (GMP) hasn’t started showing any movement till now.

Reasons to invest in Garden Reach Shipbuilders IPO


1) It is a Minirathna Category-I of Government of India enterprise which has come up with attractive valuations and low price.

2) It has a strong order book of Rs 20,300 Crores.

3) The company is offering Rs 5 per share discount for retail investors and eligible employees.

Risk Factors / Reasons not to invest in a Garden Reach Shipbuilders IPO


1) Its revenues are fluctuating. One should invest in consistent revenue generating companies which can provide long term gains. Company says its revenues in FY17 got affected due to technology changes and now it is being recovered.

2) Its margins also fluctuating. It earned 8.9% margins in FY16 Vs 1% in FY17 Vs 5.7% for FY18. While FY17 nos could be due to technology changes, investors would not be able to predict future profits to assess the valuation of the company.

3) Loss of any of its major customers or a reduction in their orders may have a material adverse impact on Company business, financial condition, results of operations and growth prospects as They are dependent on a few major customers.

4) Its 250 tonne Goliath Crane at Main Works Unit recently collapsed due to near cyclonic storm in Kolkata.

5) They have been granted certain relaxation by SEBI from the strict enforcement of certain requirements and disclosure of certain information under SEBI ICDR Regulations and SEBI Listing Regulations.

6) They could incur losses under its fixed price contracts as a result of cost overruns, delays in delivery or failures to meet contract specifications which may have an adverse effect on Company business, financial condition and results of operation.

7) They may have to participate in tenders for obtaining new orders in the future, which have been awarded to us on a nomination basis by its customers.

8) Its Company is not in compliance with certain provisions of the Companies Act and/or SEBI Listing Regulations in relation to the terms of reference of the Audit Committee and the HR, Nomination and Remuneration Committee.

9) There are various criminal proceedings pending against one of its Independent Directors, which, if determined against him, may have an adverse effect on its reputation.

10) All of its existing orders are long term orders imposing limits on the value of production that could be achieved in the next three (3) financial years.

11) Business is cyclical in nature.

12) Majority of the contracts are fixed price, hence there would be pressure on the margins.

12) For complete internal and external risk factors, you can refer the DRP of the company.

Garden Reach Shipbuilders IPO Schedule


24th September – Offer Opens

26th September – Offer Closes

1st October – Finalization of Basis of Allotment

3rd October – Unblocking of ASBA

3rd October – Credit to Demat Accounts

5th October – Listing on NSE & BSE

Also Read: Best SIP Date for Mutual Fund Investments

Garden Reach Shipbuilders IPO – Should you invest?


Let us look at the valuation of the company now. On FY2018 EPS of Rs 7.14 and on an upper price band of Rs 118, P/E works out to be 16.5x. On last 3 years average consolidated EPS of Rs 6, P/E works out to be 19.6x. There are no listed peers doing similar business, hence we cannot ascertain whether the issue price is under priced or overpriced.

While FY17 dip could have been due to technological changes in the company, its revenues have not grown much in the last 4 years. Its margins also fluctuating. However, its IPO valuations are attractive. While such IPO is not suitable for medium to long term investment + one may or may not get listing gains too. Should you really think of investing in such IPO then? Think… Think… Think…

Disclaimer: I do not have an interest in investing in this IPO and above analysis is based on my personal views. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

Readers, would you like to invest in this IPO?

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Suresh

Garden Reach Shipbuilders IPO – Fluctuating financials – Should you avoid

3 comments

  • Vineet Aggarwal

    Pls give your evaluation views on the INVESCO SMALL CAP NFO – whether I should invest or no in this fund as lumpsum for 2 years?

    • This is small cap fund. Currently there is huge downside for midcap and smallcap funds, hence one should look to invest in such funds for 8-10 yeas. Since your horizon is 2 years, don’t go for such funds

  • Rajagopal

    Hi Suresh,
    What are your thoughts on Hawkins Cooker FD scheme which is offering whopping 10.75% for 3 years deposit. Is it too risky or a good bet to invest? Thank you.
    Regards,
    Rajagopal

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